IPO DAILY: Groupon Valuation Gets Ludicrous (GOOG, MSFT, YHOO)

Google Inc. (NASDAQ: GOOG) tried and failed to acquire online coupon leader Groupon.com just a few months ago.  The valuation was said to be around $ 6 billion but ultimately Groupon turned the offer awa and Google decided to go elsewhere.  Now we have a figure that surfaced on Thursday that Groupon might be valued as high as $25 billion.

Where do you draw the line between ludicrous and expensive?  What we find even more puzzling is that the Groupon effectively has no barriers to entry.  It also has a very limited operating history of only about two years.  There is literally not a single barrier preventing Microsoft Corporation (NASDAQ: MSFT), Yahoo! Inc. (NASDAQ: YHOO), or any other large and small outfit from competing in this space.  Groupon is now estimated to have more than 70 million users and serving over 50 markets.  There we a reason we had this as one of the top 17 IPOs to watch in 2011.

The $25 billion was touted by Bloomberg Businessweek but we are not so sure on this. If the news gods would have said it was worth $10 billion or even $15 billion, we would have said that this is just expensive.  Now we are forced to call it ludicrous.  It is almost sad that we have to admit that these valuations can go higher.  Shares can sell for any price a buyer is willing to pay on these secondary private markets.

The news is two-sided.  First, this is great for Groupon and other digital ventures around social networking and coupons.  Unfortunately, it will also lead to ‘great ideas with little real business plans’ getting funding at highly inflated valuations.  That infers a bubble, and that infers huge losses in many investments down the road.  Did the world not learn the lessons of the dot.com bubble from 1998 to 2000?  

Limited history, lack of barriers to entry from competition, and $25 billion… Nice, for now.

JON C. OGG