Existing Social Media Companies Offer Better Value Over Groupon: Strategist
After months of speculation, U.S. online group discount retailer Groupon finally took the plunge and filed for an initial public offering (IPO) to raise about $750 million. While the offering has been keenly anticipated by investors, not everyone is buying into the frenzy.
One strategist told CNBC he would rather consider existing social media companies rather than Groupon because of the latter's sky-high valuations.
"The company's probably going to be quite overvalued based on any matrix that you use," said King Lip, Chief Investment Officer at Baker Avenue Asset Management. Based on Groupon's filing, the company could be valued as much as $20 billion.
On the other hand, existing companies with a similar business model such as Travelzooand Open Table , which already have a proven track record of making money, are valued only at $1-$2 billion, Lip noted. "From a valuation perspective those companies look better on a relative basis."
Lip also highlighted concerns about Groupon’s growth trajectory. The two-and-a-half year old company has been trying to expand rapidly, signing up deals with nearly 57,000 merchants in over 40 countries. But that has proved costly as the company wound up in the red, posting a $413.4 million loss last year and a further $113.9 million in the first quarter this year.
"The sky-high valuations of these new social media companies suggest there is still a risk-on type mentality for most investors," Lip said.
Investing in Learning
Lip's other favorite trades are in education and training companies. And this has to do with the weak jobs picture in the United States.
"The numbers coming out tomorrow are probably going to be about 9 percent unemployment. What that's telling us is that there's a lot of people unemployed who are probably seeking skills, new skills, and retraining to get back into the job force." he said, referring to the May jobs report.
As such, education service providers like Apollo and DeVry are likely to do well as more people seek their services.