Groupon’s (NASDAQ: GRPN) stock price shot up over 20% Friday amid rumors that Google might be courting the company as an acquisition candidate.
Forbes discounted the rumor as a stupid rumor of the week, calling it, “A rumor so silly that no right-minded person would think it true.” Motely Fool echoed the sentiment with a headline that read, “Google Isn’t Buying Groupon, Folks.” Bloomberg, on the other hand, put a lot of stock in the comments of an analyst for Telsey Advisory Group, Tom Forte, which lead them to run a headline suggesting the rumors were not so silly.
Why the Rumor May Have Legs
Forte said that Google’s interest in acquiring Groupon has been rekindled since the company had considered an acquisition of Groupon for $6 billion before Groupon went public and, “Where the stock is currently trading, it’s a takeout candidate.” He went on to speculate that, “If Google was interested at $6 billion, I think it’s a possibility.” The attempts to get comments from Google and Groupon representatives were fruitless, so there has been no official confirmation or denial on either parties part.
There are some sensible reasons Google might be considering buying Groupon, aside from just price. Groupon has relationships with about 250,000 local businesses and they have enjoyed a strong relationship with Facebook. Gaining access to all these businesses while simultaneously taking that relationship away from Facebook is a pretty appealing idea. Google plus could certainly use any boost it can get and a Google/Groupon deal would be killing two birds with one stone.
Is the Daily Deal Business a Good Business Model?
Some analysts think Groupon’s stock has been declining because it simply isn’t as solid a business as once thought, thus making the Google acquisition rumor less likely to be true. Groupon’s biggest competitor, Living Social has laid many of its employees off, leading many people to believe the daily deals business model just doesn’t have legs long-term. After all, Living Social is partly owned by Amazon and some pretty large venture capital funds who have not only money, but substantial management expertise and they have still had trouble making their business model profitable.
Stockholders’ Should Brush up on Both Companies’ Fundamentals
The question most people should be asking themselves about Groupon and Google is whether they are looking at them as investments or technical stock plays. Technical stock traders may be completely unconcerned with company fundamentals and very concerned with what drives short-term price fluctuations. Investors, on the other hand, should be looking at the fundamentals of both companies if they are in it for the long haul.
If there was an acquisition about to happen everyone who owns stock in either company has reason to pay attention, and if you’re in it for the long haul it’s still all about the underlying fundamental business prospects of the company you’re investing in. If there is an acquisition, Groupon stockholders will become Google stockholders, so regardless of how you view the rumors you may want to brush up on your knowledge of both companies’fundamentals if you own stock in either company.
