NEW YORK ( TheStreet) -- I received quite a bit of hate mail for suggesting what Wall Street already knows -- local deals giant Groupon (GRPN - Get Report) 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 (FB - Get Report) 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 (AMZN - Get Report), a rejuvenated Yahoo! (YHOO - Get Report), Google (GOOG) 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 (OPEN) 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.
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