06/06/2011 11:35 am ET Updated Aug 06, 2011

Ahead Of IPO, Some Skeptical Of Groupon's Value

Daily deals site Groupon's announcement that it will file for an initial public offering has some investors giddy, but critics warn that despite stunning revenue growth, that the company's sheets hold a number of warning signs.

Groupon, launched in 2008, has expanded rapidly in the past 30 months, expanding from a handful of U.S. cities to over 40 countries worldwide, and attaining a valuation estimated to be near $25 billion dollars. But poring through Groupon's S-1 filing with the SEC has some people wondering if the site is anything near as profitable as it seems--and if its revenues are sustainable.

The New York Post notes that while Groupon's revenue increased by 2,241 percent last year, spending rose even more dramatically at 5,732 percent. In 2010, Groupon spent $263.2 million on marketing in the attempt to gain more subscribers (including purchasing Super Bowl ad worth around $3 million). In 2009, it spent $4.5 million on the same cost.

Though Groupon has grown its subscriber base, the value of each subscriber has decreased. Forbes points out that revenue per subscriber has dropped 26 percent from $19 in the third quarter of 2010 to $14 in the first quarter of 2011. Though customers are getting more offers, fewer customers are actually buying those offers. Only 19 percent of subscribers have ever purchased a daily deal.

The problem is especially glaring when it comes to Groupon's hold on its existing consumers. Revenue from older customers has declined 57 percent from $58 to $37. A post from Yipit points out that though such deterioration in older customers tends to follow the aging of those customers, that the average age of the Groupon customer has stayed the same. But these customers, who should be Groupon's most loyal, are buying subsequent deals at a lower rate, and are less engaged with the site generally.

Additionally, Groupon could be losing a hold on its merchants, as the site is selling less and less deals per merchant. As Groupon's subscriber base grows, the number of deals offered grows even faster. And as customers become less disengaged, Groupon's ability to effectively satisfy merchants is endangered.

Others have countered that worries about Groupon's future are unfounded.

"At some point, their sales and marketing costs will slow and these guys will make a lot of money," Eric Jackson with the investment firm Ironfire Capital told the New York Post, adding, "It will be a blockbuster IPO."

In the meantime, Groupon must also contend with a whole slew of competitors, including the similar LivingSocial and heavyweights like Google and Facebook.