IPO Rethink... Groupon Faces Mountains of Competition (GOOG, TZOO, KNOT, AMZN, OPEN, RLOC, REDF, LOCM, SPMD, WMT)
Groupon is supposed to be one of the 24/7 Wall Street Top 17 IPOs to Watch in 2011. That hasn’t changed, but our skepticism is growing at the same time that internet valuations for these emerging social web companies is ballooning. Our biggest concern regarding Groupon is that there are literally no barriers to entry. We wanted to feature just some of the large companies which matter, along with some of the smaller public companies which may be able to give Groupon a run for the money.
First and foremost, Google Inc. (NASDAQ: GOOG) tried to acquire the company but the $6 billion or so offer was said to undervalue the company and no deal was reached. With recent values being put in the $20 to $25 billion, we just do not expect Google to stay hidden.
Travelzoo Inc. (NASDAQ: TZOO) may have been pounded this week as the stock went from over $100 to under $85.00 this week alone. What has helped to drive shares before that was the growth of its LocalDeals unit. This was a $66.00 stock at the end of March.
The Knot, Inc. (NASDAQ: KNOT) may have been given a small William boost (or is it really a Kate Middleton boost?), but it has also been migrating for some time to more local deals.
Amazon.com Inc. (NASDAQ: AMZN) did a coupon offer of its own through LivingSocial, which it reportedly invested $175 million in December. As large as Amazon is, there is no way in hell that Groupon was going to be allowed to not run into the beast of online retail.
Facebook has also jumped on the bandwagon here with deals in a limited city launch of local discounts through prepaid vouchers. How this ultimately plays out is something we are not certain yet, but one thing is for sure… Those Facebook loyalists would let Mark Zuckerberg put a Facebook logo on their front doors if he’d think about offering it. OpenTable, Inc. (NASDAQ: OPEN) is up over $110.00 again ahead of next week’s earnings and it has a deal with Facebook.
ReachLocal, Inc. (NASDAQ: RLOC), a fairly recent IPO, saw its shares surge 30% at one point this week after earnings and after it reported a partnership with Google. Google may have wanted it more for its four key international market presence, but it will be a partner in the search engine’s AdWords system.
Rediff.com India Ltd. (NASDAQ: REDF) has magically resurfaced after having been mostly forgotten by most investors. The India website has seen its stock effectively triple in just the last 45 days. The company’s announcement on April 26 that it was launching a “group deals service” in 40 Indian cities called “Rediff Deal Ho Jaye!” has driven shares further. Last Friday this was a $11.25 stock, but now shares are up around $16.25 and its market cap is about $455 million.
Local.com (NASDAQ: LOCM) was given some attention in December when the Groupon deal was running shares. It has since had an earnings warning and the shares are still under $5.00 now after having risen to over $6.00 in December. Another winner at the time was SuperMedia Inc. (NASDAQ: SPMD), which has SuperYellowPages, had doubled at one point in the last weeks of 2010 to over $9.00 but its shares are back down close to $5.00 again. Both of these were featured by many as “alternatives” that could grow in this space.
Even Wal-Mart Stores Inc. (NASDAQ: WMT) has gotten into the game when it acquired Kosmix for social and mobile commerce initiatives.
Before you think that Groupon is dead, it isn’t. It still has loyalists and it is still going to grow whether we have some caution or not. That doesn’t mean that its valuation will not come under fire. It also does not mean that Groupon is automatically assured a successful life indefinitely.
There is literally no barrier to entry for any company with enough reach to compete with Groupon. Can Groupon claim that it invented coupons? Can it claim that it is the only social networking play out there? Can Groupon even claim that it invented online coupons? The answer is no.
You can join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.
JON C. OGG