Groupon Loses its Group

Tickers in this article: AMZN FB GOOG GRPN OPEN YHOO

NEW YORK (TheStreet) -- I received quite a bit of hate mail for suggesting what Wall Street already knows -- local deals giant Groupon was essentially about to expire. I offered my opinion and what I thought was a pretty good argument.

My premise was simple -- although the company has a great idea, it just does not seem sustainable -- at least not in its current format. As we are currently finding out with Facebook not every idea makes a great investment. Like Facebook, Groupon has seen "its share" of turmoil -- both literally and figuratively.

What has resulted is a drastic drop of over 70% in value since reaching its six-month high of $25.84. The question however is not so much "why?" but rather, "what has taken the market so long to come to its senses?" I guess you can say Groupon is no longer being accepted.

Aside from a business model where it puts merchants at some possible severe disadvantages to the extent of revenue losses in the areas of 50% to 70% below their standard rate for their product or service, but also what exactly would it take to launch a Groupon-like service? It would take little to no investment at all.

So the question is, how exactly can a company with little to no competitive leverage ever earn a profit -- one that could justify a long-term investment? With the stock's precipitous decline the only conclusion one can safely draw is that investors have seen the light. They now realize that Amazon , a rejuvenated Yahoo! , Google and Facebook could easily take whatever business Groupon has. They only need to want it bad enough.

What's more, even if a company does not have a prominent name like the ones mentioned above, it might only take a targeted mailing list to select clients based on existing spending habits to send Groupon out of business. The perfect example is Open Table was when it first launched its OpenTable Spotlight.

The result was overwhelmingly successful as it stole a great portion of Groupon's restaurant market share. So just imagine what Amazon or Yahoo! might be able to do.

Another area of concern is that Groupon's potential rivals have other revenue streams aside from the deals business. These include advertising, hardware, software, search, Web content and a host of other services.

Groupon has to make its business work and can't skip a beat, where a Google or Amazon can leverage other areas of their business to offset any potential deal drawback. If nothing else, they could just steal Groupon's traffic for their advertising-supported initiative.

These are just a few concerns that investors have had over the past couple of quarters. And we have yet to even address the "less than stellar" track record of the company's founder Eric Lefkofsky. In fact, some have even suggested a "spotty history" as described by investorplace.com -- a history that includes accusations of racketeering (later withdrawn), as noted in a Fortune article, plus bankruptcies, lawsuits and accusations of "creative accounting" from previous businesses under his supervision.

When you put these dynamics together, it is hard to muster up any confidence in the framework of Groupon. As investors continue to separate themselves from the stock, at this rate it will be a surprise if Groupon is still around by this time next year absent some significant fundamental changes.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Tickers in this article: AMZN FB GOOG GRPN OPEN YHOO