Groupon is currently valued at 9.72 Billion dollars. Ebay and Amazon that have superior business models are valued at a mere 5 and 10 times this amount. Ebay, an established internet giant with a P/E of 15 has to be worth more than 5 Groupons.
Groupon are running an untested business model that simply does not work, and in my view can not work. I receive my Groupon promotions everyday which supply me with a laugh when I see the latest crazy offering but nothing more.
Companies that are struggling to make sales are on Groupon. By the very nature of this any thing groupon has to offer is generally undesirable to the mass market. Essentialy nothing people would really want could be on groupon.
The valuation of groupon is based on the number of people who have looked at the sight and received such promotional offers rather than on sales or profits.
In terms of barriers to entry, the company would be easily recplicatable for anyone else wishing to lose money in such a manner.
I think we have seen bubble territory with the latest internet company offerings. Yelp and Zynga in my view are also overvalued. But groupon leads the pack and I can not see how it can possibly support a market cap of 9.7billion over the next year. I would expect at least a 50% decline and perhaps more.
The lockup period ends soon and I would expect to see anyone who can dumping their stock at these valuations.
To put the groupon valuation in context, a 50% decline in share price would still leave groupon as a 5 Billion dollar company, if it presently had a 5 billion dollar valuation I would still be writing this article.
I think therefore its time to short groupon.
Disclosure: I am short GRPN.