The selling off of top Internet and momentum names this month has really taken its toll on Groupon (NASDAQ:GRPN). Shares are already down down 40% year-to-date. Its core business model still has investors scratching their heads. Investors remain disappointed by the unimpressive performance, specifically from the last quarter and less-than-impressive guidance for the current quarter.

First, the bad news
Revenues were actually up 20% year over year for the fourth quarter of 2013. North America was up 18%, while Europe, the Middle East, and Asia was up 43%. Total revenues were nearly $770 million for the quarter. For the first quarter of 2014, the company expects revenues to be between $710 million to $760 million. On a quarter-over-quarter basis, then, sales growth will be negative. 

The big worry is that Groupon's business model is easily duplicated by other companies. Its recent deals with vendors have not been particularly large, and the company does not have an economic moat that can keep the competition at bay. It does have cash of $1.3 billion, compared to its market cap of just over $5 billion and shrinking. The company's debt is negligible, however, giving it a solid balance sheet. Groupon is also looking to pivot by diversifying revenues away from daily deals. 

Management shakeup and laying out the vision
Groupon has had a long road since its IPO. Since its late 2011 IPO, shares are down nearly 75%. The market did take CEO and co-founder Andrew Mason's departure as a positive, though; shares were up nearly 13% on the news.

Groupon's other co-founder, Eric Lefkofsky, took over as CEO. His focus is on ramping up its marketing efforts, while reinventing the company as an online retailer. However, the management team has been unable to win the support of Wall Street and analysts.

Lefkofsky has a number of positive initiatives under way. One of these is increasing the generation of non-coupon based revenues. This move will help the company diversify its revenues and rely less on the online deals business, which is attracting serious competitors such as Google (NASDAQ:GOOG) and its Google Offers and's (NASDAQ:AMZN) LivingSocial. However, investors should take solace in the fact that Amazon and Google have their hands full with other ventures.

LivingSocial has also delayed its IPO, making Groupon the only pure play at the moment in crowdsourcing coupons. After all, investors aren't likely to buy Amazon just to gain exposure to LivingSocial. 

The long-term growth map
Global e-commerce revenues have jumped from $482 billion in 2009 to an estimated $963 billion in 2013. In North America alone, the revenue growth has gone from $132 billion to $263 billion during that period. This means that the market potential is very large for Groupon.

That market appears to be big enough for many competitors as well. Amazon might be taking its eye off of the e-commerce market, providing Groupon with an opportunity. Amazon has been turning itself into more of a hardware company, meaning that it's competing more with companies like Apple. Amazon recently launched its Fire TV and is also developing mobile phones. With Amazon's large customer base, it's not unreasonable that the company will get further entangled with Google and Apple over the fight for mobile payments as well. 

Making a move to better resonate with shoppers
The company has just launched its latest line of deals, called the "Elite Deal Series." This is a collection of luxury items that will be available on an ongoing basis and will feature premium pricing. For the past few years, the company has been successful with high-end products such as diamond rings and designer handbags because it has been able to offer its customers substantial discounts.

This should be a positive for two reasons. First, it will help the company to boost its profitability because of the premium-plus pricing. Second, it will help to insulate the company from a weak economy, as higher-end goods tend to perform well regardless of the economic environment. 

Groupon is also building a warehousing operation so that goods can be shipped directly to customers instead of relying on merchants to do so. It is believed that the company will focus on selling specific merchandise at the best possible prices rather than trying to be everything to everybody. That's a big positive, since previous complaints about Groupon have been focused on the fact that its targeted deals were not always relevant. 

The company is aggressively developing revenue streams from various sources. It's established the Goods division to expand its online retailing business. It has also kick-started overseas sales with the $260 million acquisition of Ticket Monster, while also establishing an immediate online presence by paying $43 million for Ideeli, the fashion retailer. Finally, the company has made a move into TV advertising with a new campaign featuring its e-commerce business.

All of these moves are positive, but they will take time to pay off. The company is sacrificing near-term earnings to invest in its long-term prospects.

Bottom line
Over the last couple of years, short-term investors piled into what should be a long-term investment. As a result, they have been disappointed in their investments. Groupon is making some positive changes, although it will take time before its new initiatives pay off. It still has strong brand and name recognition advantages, and it still has a robust deals business. For investors that are looking for a tech company with turnaround potential, Groupon is worth a look.

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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends and Google (C shares). The Motley Fool owns shares of and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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