For those of you whom have been following recent news, the emergence of large social media IPO's have not been uncommon. Since Goldman's valuation of Facebook was estimated at $50 billion, many tech companies have been clamoring to push IPO's to capitalize on the "Facebook" effect. The "Facebook" effect as I like to call it, is a the positive influence of a high valuation to relatively lower valuations. The fact that Facebook received such a high (or over) valuation has allowed other companies to use market sentiment to demand higher valuations. Cue Groupon. Groupon initially valued at $4.8 billion scoffed at the initial estimate and argued that they were worth more. We all thought they were crazy. Now it turns out we may be the crazy ones, recent reports indicate that Groupon may now valued at nearly $25 billion. Not too shabby for a coupon company. The question now is Groupon actually worth that much? The answer sadly is, Groupon is is worth what the market is willing to pay for it.
This remarkable quintuple of value over a six month span indicates something troubling developing in the technology, specifically, the e-marketing industry. A technology bubble is developing. If history has taught us anything, it is that what goes up must come down. Period. This was lesson that was learned the hard way in late 1990's (dot com crash) and again in 2007 (housing market). If this is the case today, then Groupon's valuation is symptom of the illness. Overconfidence and greed coupled with investments in the social media industry may spell disaster for social media companies in the future. In the meantime lets hope Groupon won't burst the bubble.
