9:12 PM
Google close to clinching Groupon deal: reports
Addison Ray
By Alexei Oreskovic
SAN FRANCISCO | Tue Nov 30, 2010 10:11pm EST
SAN FRANCISCO (Reuters) - Google Inc is reportedly closing in on a deal to buy online discount-coupon sensation Groupon for up to $6 billion in its largest-ever acquisition, signaling a willingness to use some of its huge cash hoard to buy growth.
A deal, reported by several media including the New York Times on Tuesday, would give Google an important window into a fast-growing $91 billion local advertising market.
But Google's shares fell 4.5 percent, partly on concern it may shell out too much for a business likely to face increasing competition. Reports of the deal came as the European Union announced plans to investigate Google's search practices.
"Investors think that might be overpaying," Kaufman Brothers analyst Mayuresh Masurekar said of the reported $5 billion-plus deal.
"There are no barriers to entry. There is nothing unique to what they're doing," he said of Groupon, "so there is a risk that Google overpays for Groupon at this point."
But he added that buying Groupon could help Google make further inroads into a local advertising market that analytics firm Borrell Associates estimates will be worth $91.1 billion in 2010.
Groupon sends its members daily e-mails with about 200 discounts for goods and services. The deals are activated only when a minimum number of people agree to make a purchase, giving Groupon clout to negotiate steep group discounts on products and services.
Wedbush Securities analyst Lou Kerner said that daily-deals service dovetails with Google's search advertising business, with both focused on helping merchants acquire customers.
"Google is building a mosaic of marketing solutions for businesses," said Kerner. "So having this kind of flash-sale side of the business, which will all be automated, just makes a ton of sense."
A Google spokesman said the company does not comment on rumor or speculation. A spokeswoman for Groupon declined comment.
A WEB PHENOM
Groupon -- called the fastest-growing Internet start-up in history -- does not disclose financial figures, though analysts estimates for the two-year old company's annual revenue run rate range from $400 million to $600 million.
The company founded by music graduate Andrew Mason, who lives in Chicago with his girlfriend and 20 cats, has been on a tear. Its subscriber base is expected to grow to 25 million in 2011 from 13 million this year.
Its backers include Digital Sky Technologies, which is also invested in Facebook.
"It's been one of the fastest growing companies in history and that growth is going to be accelerated being part of the Google platform," Kerner said.
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