Groupon, Inc. the deal-a-day coupon website that is currently enjoying a tremendous wave of attention, has indicated its intention to raise $950 million in equity financing at an enterprise valuation of $7.8 billion. A figure that would put it on par with Sears Holdings, JC Penny, and NYSE Euronext, truly stunning for a 2 year old company! Given all the excitement currently surrounding the company, its probably reasonable to assume that this level of funding is well within its grasp.
So this got me thinking, if its worth $7.8 billion today, what could it be worth 3 years from today?
Its been reported that the company's annual revenues are set to top $500 million this year. To put this figure in perspective, I came across this 2003 Fast Company article that discusses Google’s own astronomical growth rate:
Groupon revenue = $500 million after 2 years!
So Groupon’s growth has been highly impressive so far. But if we were Groupon investors, what could we reasonably expect from our investment 3 years from today, especially given that our investment is based on a $7.8 billion valuation. If we were to assume that the company’s growth averages 50% a year for the next 3 years (no easy feat, but doable), that would put its annual revenues at $1.7 billion. If its net margins in the same period of time hover in the 25% range (about equal to Google and Apple), then that would translate to annual earnings of $425 million. If we apply a price earnings ratio of 22 (roughly what technology companies fetch today), then that would imply a valuation of $9.4 billion in 3 years. An annualized 6% rate of return. Pedestrian at best...
So what could Groupon be worth in 3 years, given that I used rough estimates, its probably some number between $9 billion and $15 billion. Either way, $7.8 billion sounds like a really steep price to be paying today...
So this got me thinking, if its worth $7.8 billion today, what could it be worth 3 years from today?
Its been reported that the company's annual revenues are set to top $500 million this year. To put this figure in perspective, I came across this 2003 Fast Company article that discusses Google’s own astronomical growth rate:
Google's revenue model is notoriously tough to deconstruct: Analysts guess that its revenue last year was anywhere from $60 million to $300 million.Google revenue = $60 million to $300 million after 5 years;
Groupon revenue = $500 million after 2 years!
So Groupon’s growth has been highly impressive so far. But if we were Groupon investors, what could we reasonably expect from our investment 3 years from today, especially given that our investment is based on a $7.8 billion valuation. If we were to assume that the company’s growth averages 50% a year for the next 3 years (no easy feat, but doable), that would put its annual revenues at $1.7 billion. If its net margins in the same period of time hover in the 25% range (about equal to Google and Apple), then that would translate to annual earnings of $425 million. If we apply a price earnings ratio of 22 (roughly what technology companies fetch today), then that would imply a valuation of $9.4 billion in 3 years. An annualized 6% rate of return. Pedestrian at best...
So what could Groupon be worth in 3 years, given that I used rough estimates, its probably some number between $9 billion and $15 billion. Either way, $7.8 billion sounds like a really steep price to be paying today...
