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Kayak and Groupon: A Tale of Two Websites

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Those lean operations, growing profits, and technical expertise are the keys that made Priceline an interested buyer at a premium priced valuation.

Cantor Fitzgerald analysts highlight that Priceline's acquisition allows the company to better generate user traffic and wean itself from Google, a competitor. "Kayak's acquisition allows Priceline to move up the traffic funnel with a high-quality meta-search product and reduce dependence on Google," writes Cantor. "Kayak's brands recognition, strong query growth and success with mobile are valuable assets," the firm adds.

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Deutsche Bank analysts assign a low probability that a competitor like Expedia would try to outbid Priceline and they see little reason for antitrust regulators to block the deal, given Kayak's size in comparison to the online travel market.

In contrast, Groupon appears focused on workmanlike efforts to grow users and retail relationships to a scale where size is the company's competitive advantage. While chief executive Andrew Mason talks about analytics and targeted ads, the company's results show little in the way of the technical expertise that put it apart from competition.

In an effort to add reach, users and products, Groupon's become bloated and unmanageable, as evidenced by high expense, falling gross margins and record low share prices.

Bloomberg data shows a consistent path of declining gross margins as Groupon grows revenue - and in recent quarters - escalating losses that have cut shares to all-time lows below $3 a share.

Groupon was able to lift its battered share price by launching a mobile payments venture earlier this fall; however with competition from eBay (NASDAQ:ENAY) and others, it's hard to see a comparative advantage. Other new ideas, like Groupon Goods and Groupon Getaways, are a late entrance into online retail and travel markets. A recent international push was seen as one of the biggest disappointments in the company's third-quarter earnings.

While Kayak was able to impress Priceline with its nimble and differentiated operations, Groupon's unruly set of operations may be dissuading investors from taking a look, as losses for daily deals ventures like Amazon's (NASDAQ:AMZN) LivingSocial escalate.

In third-quarter earnings, Groupon reported break-even adjusted earnings on $568.8 million in revenue. Analysts polled by Thomson Reuters were looking for earnings of 3 cents a share on $590.12 million in revenue. Revenue rose 32% year-over-year, but Wall Street was looking for more.

"Overall, the disappointing profit guidance for 4Q12, uncertainty around Groupon's direct revenue business, and the ongoing overhang from the restatement of 4Q11 results, continues to suggests to us that GRPN's business model is in flux and highlights that there remains a high degree of investment risk. Hence, we are taking a wait-and-see approach," wrote Credit Suisse analysts, in reaction to earnings.

As seen on Thursday, investors and strategic buyers are far more likely to take interest in lean operations on a targeted upswing, than sprawling businesses in a state of flux.

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