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Commentary

Before Buying Groupon's Deal, Read Our Fine Print

Investors should pass on this Daily Deal.

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Not surprisingly, Groupon GRPN has cut a deal with potential investors. It has indicated that it seeks a $10.1 to $11.4 billion valuation with a $16 to $18 per share offer range, a valuation that approximates a 50% discount to the $20 billion level the company had sought earlier in the year. However, we don't believe that this Daily Deal, scheduled to price Nov. 3, is enticing enough for investors to buy. 

Morningstar's Take 
Groupon's sales model exhibits weak economies of scale. The company is the largest provider of daily deals, and its growth in customers, merchants, subscribers, and revenues has been nothing short of stratospheric. (We project sales to increase more than five-fold to nearly $2 billion in 2011.) However, the company has not been able to achieve profitability, as expense growth continues to outpace revenue gains.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.