Groupon filed its long-anticipated S-1 last Thursday, and the Internet has been buzzing since, with everyone from David Heinemeier Hansson to Business Insider to the founder of Knewton chiming in on whether or not Groupon is doing the right thing, or whether their stock will be a good investment. Groupon is looking to raise $750 million, valuing the company at around the $20-25 billion ballpark that has been whispered about. If that were indeed true, existing investors like Capital Research & Management, TCV, T. Rowe Price, Kleiner Perkins and Greylock would have a field day at the IPO, as they would’ve about quadrupled their investments.

Groupon has demonstrated a stunning growth rate in the years since it launched in 2008, and it doesn’t look like it is slowing down. Revenue in 2010 was $713 million and grew to $645 million in the first quarter of 2011 alone. Despite the impressive topline trajectory, Groupon is not profitable yet, and that can be worrisome if customer acquisition and other costs are so high that the company will never even breakeven at scale. Groupon’s revenue growth was north of 2,000% last year, yet the growth of costs almost tripled that. In 2010, Groupon spent $263.2 million on marketing expenses in relation to customer acquisition and that includes purchasing Super Bowl ad worth around $3 million. At the current rate, it looks like it takes $1.43 for Groupon to make $1. With a burn rate so high, will Groupon ever turn a profit? Skeptics can compare Groupon to Amazon, who didn’t become profitable until four years after its IPO, and look at Amazon now? From the Amazon example, one can deduce that profitability is not necessarily the most accurate benchmark of whether a company is successful.  

Another hurdle facing Groupon is that it has very little competitive advantage. In the daily deals industry, barrier of entry is low, and competition is already heating up. Companies such as Bloomspot and LivingSocial are fast on Groupon’s tail, and offer essentially the same services. In addition, much larger — and more cash-rich — companies are throwing their hats into the ring. Industry stalwart Google is beta testing its Google Offers service, with localized offers. Amazon is also planning a similar service, in an industry with very little brand loyalty to speak of.

Lastly, though Groupon has grown its subscriber base, the value of each subscriber has decreased. Forbes points out that revenue per subscriber has dropped 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% 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 36% 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.

With all of the cautionary notes, it is not a surprise that Groupon’s S-1 filing has the entire digital community chattering. What remains a fact, though, is that Groupon is the fastest-growing company in history, and every investor knows it. At this point, valuing the company becomes a question of how quickly and how effectively they’ll exploit the opportunities ahead, and we’re as anxious as the rest of you to see history unfold.