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.
I agree with you about Groupon being valued for more than they should actually be worth, but then again, they do have a lot of followers and have shared a lot of success due to their coupon offerings. Groupon was like the first to pioneer this idea of using social networking to spread the savings. Due to their high rate of success, their company value has also increased at a high rate. The idea that they came up with was great because it made it so lesser known businesses gained more customers and bigger businesses also earned more money. I believe that this helps out the economy, which makes it stronger. With the way the economy has been, less and less people have been out spending money and more and more have been focused on saving every penny they could. With Groupon, the overpriced items that people desired became reasonably priced which made people spend the little bit of money on a coupon in order to save more in the store. Groupon doesn't hurt the economy because, lets face it, the big businesses that have their prices high enough to be able to offer coupons for 50% off are still making money, but they are gaining more business because if you go into a clothing store, you don't usually just buy one item. If a coupon is for a shirt, then you'll want a pair of pants to go with it, which in turn, makes up for the discount your getting on the shirt. In the end, I believe that Groupon is valued at $25 billion because of how many people are using the website and truly believe in it. The daily deal has become the best thing and I don't think it would spell disaster for social media. It is just offering consumers a discount offer in a convenient manner!
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