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Today's Deal: Groupon for Less Than Google's 2010 Offer Price


Buying the dip is today's daily deal.

MINYANVILLE ORIGINAL Daily deals from Groupon (GRPN), Amazon (AMZN), and Living Social crowd our inboxes with 50% off bargains for massages and meals. Today, investors are gobbling up Groupon stock for a discount.

Yesterday, Groupon shares fell as low as $8.80, an all-time low, after the lock-up period ended and company insiders flooded the market with shares of a company that had already lost its luster. The avalanche of sell orders prompted a "circuit-breaker."

This put Groupon's market capitalization below Google's (GOOG) $6 billion offer for the daily deals site in 2010.

Today, with the stock priced at half its IPO price, apparently a lot of investors are seeing an attractive buying opportunity. Groupon shares have climbed nearly 8% today, approaching a valuation similar to last Thursday, before the lock-up period ended.

Groupon's most recent quarterly financial statement beat expectations, but the company still has yet to swing to a profit. Though Groupon is paring its massive sales and marketing budget, another problem that it is facing is having to refund users.

One third of Groupon's outstanding shares are owned by company executives, and venture capitalists own another third. As Susquehanna analysts note, VCs are less likely to cash out at this point, and might hang on to the stock. "We are not sure about VC appetite to be selling at current levels," the analysts said.

Similar dips took place after lock-up periods ended. LinkedIn (LNKD) shares also dropped after the post-IPO lock-up ended just days after the company made a second offering.

Another factor might be the dark cloud cast on Internet stocks by Facebook's (FB) flubbed IPO. Private companies, especially tech startups, are feeling the pain. This morning, Paul Graham, a famed venture capitalist behind Y-Combinator, a business incubator in Silicon Valley, sent a glum letter to YC's companies. He said (emphasis added):

Jessica and I had dinner recently with a prominent investor. He seemed sure the bad performance of the Facebook IPO will hurt the funding market for earlier stage startups. But no one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle.What does this mean for you? If it means new startups raise their first money on worse terms than they would have a few months ago, that's not the end of the world, because by historical standards valuations had been high. Airbnb and Dropbox prove you can raise money at a fraction of recent valuations and do just fine. What I do worry about is (a) it may be harder to raise money at all, regardless of price and (b) that companies that previously raised money at high valuations will now face "down rounds," which can be damaging.

...The startups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up. So don't be that startup. If you've raised a lot, don't spend it; not merely for the obvious reason that you'll run out faster, but because it will turn you into the wrong sort of company to thrive in bad time.

On the East Coast, Fred Wilson of Union Square Ventures responded with a bit of context and perspective to Graham's comments on Facebook. True, Facebook shares are far below the IPO price, but if you try to assess a value for Facebook based on earnings and cashflow, its valuation is approaching common sense.

I don't disagree with PG when he says that Facebook's IPO performance (or lack thereof) has the potential to impact valuations in startup land. I think it will be particularly impactful on the late stage and secondary markets where most of the IPO valuation speculation is happening.

But let's put Facebook's current valuation in perspective. At the closing price of $26.90, Facebook commands a valuation of $57.5bn (according to Google Finance). Facebook had around $4bn of cash prior to going public and raised about $10bn so let's assume they have $14bn in cash on the books. That means Facebook has an enterprise value of roughly $43bn.

... Facebook's enterprise value is greater than 10x current revenue run rate and greater than 25x EBITDA. These are big multiples folks. I am happy to take those numbers for any company out there.

Facebook's price to earnings ratio is still sky-high at 84.98, but still far below peers like LinkedIn, which trades at 571.04 times earnings. Groupon still has yet to experience profitability as a public company, but a cheaper stock will make it more attractive when it does.

Twitter: @vincent_trivett
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