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Friday, October 8, 2010 (SF Gate)
Why Yahoo Would Spend $2 Billion To Buy Groupon (YHOO)
Nicholas Carlson, provided by<br /><a href="http://www.businessinsider.com" target="_blank" style="text-decoration:none"><img src="http://imgs.sfgate.com/graphics/partners/businessinsider/article_header.gif" border="0" /></a>
Yahoo is looking at buying daily-deal powerhouse Groupon, Kara Swisher
reports.
Yahoo would have to issue debt to buy Groupon for a price somewhere above
$2 billion – figuring a 6X to 8X multiple on a $200 million to $400
million business.
We think this would be smart.
Want to know why?
Take a look at this chart we published in May.
One of Yahoo's most valuable assets is its HUGE lead in email.
Unfortunately for Big Purple, the the once-fast growing business its
developed with that traffic – piping it through a slew of media
properties and ask brand advertisers will pay for the eyeballs – is
starting to slow.
So how would buying Groupon help?
Groupon, makes ALL of its money ($400 million this year?) sending coupons
to its users' email inboxes.
Its biggest cost is user-acquisition – buying its way into inboxes.
If Yahoo were to buy Groupon, it would at once eliminate Groupon's biggest
cost AND increase its subscriber base to over 100 million people.
Cha-ching!
The kicker? Yahoo is ALREADY making money off Groupon ads in its inbox.
See the screenshot of my Yahoo Mail inbox below.
But instead of reaping Groupon's huge margins, Yahoo is just collecting
mediocre CPMs for lousy email banner ads. Worse, it doesn't have any
relationships with the local businesses fueling Groupon's spending.
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