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LivingSocial Looks Scattered

Posted on Thursday, Apr 12th 2012

Last December, LivingSocial raised $176 million in a round of funding that pegged their valuation at $6 billion. Investors included Lightspeed Ventures, Amazon, and possibly JP Morgan Digital Growth Fund. Despite the injection of money, I maintain my skepticism about their outlandish valuations. The recently revealed Amazon results, which cite LivingSocial’s performance, do little to change my opinion.

LivingSocial’s Financials
Amazon owns 31% of LivingSocial and had to disclose their results in a regulatory filing. The results revealed that LivingSocial earned $245 million in revenues and lost $558 million in 2011. However, these losses include charges for acquisitions and stock compensation. As of February 2012, LivingSocial had 60 million members spread across 647 markets worldwide. LivingSocial is present in 20 countries on six continents.

LivingSocial Revisits Offerings
Last quarter, LivingSocial released a new service for food delivery, LivingSocial Instant. However, after a beta test in the Washington, DC market, the company decided to shut down the service. According to the company, they did not see as much traction as they had expected. Instead, they are now looking at a new food-ordering service called Takeout & Delivery. Unlike Instant, which offered flash discount on nearby restaurants, the new service will be a food ordering service. LivingSocial claims that the new service is in line with the restaurant partners’ need to be able to connect with customers for takeout or delivery services.

They also recently launched their own credit card. The no-annual-fee card with Chase and Visa will be offered to all their U.S.-based subscribers. The card will come with its reward scheme that will let users earns Deal Bucks based on the number of deal purchases they make on their card.

Earlier this year, LivingSocial also announced a recent purchase of real estate in Washington, DC. They will use the offline investment to help their merchants host events. Merchants will be able to offer classes and host activities at the location. LivingSocial believes this is the next level of progression for local commerce.

All of these moves seem rather scattered to me. Over the past year, LivingSocial claims that they have spent heavily on investing in growth, acquiring customers and marketing opportunities. For now, their revenues are not able to match up with these expenses.

Analysts believe that the daily deals market has grown at an annualized rate of 304% over the past five years to $1.7 billion. Another report projects that the daily deals market in the U.S. will generate $2.7 billion in revenues this year and will reach $4 billion by 2015. Market growth projections may reflect revenue potential. However, for now, I am not convinced these revenues are translating to profits soon enough. Customer acquisition costs remain extremely high, and question marks around business models persist.

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The story seems a little scattered. As an analyst myself, I couldn't disagree more. Your points are way off and you fail to dig deep into the few relevant points you did touch on. Have you actually reviewed the investments and acquisitions? For example the acquisition of Ticketmonster the largest player in the game in South Korea? Dealissime in France? These are HUGE acquisitions and will serve them very well. You should do your homework. Living social seems to be one of those companies that will redefine the way their respective space works. They are also clearly working with arguably the best leadership team out there there is no comparison to any other company in the market.

Joaquin G. Thursday, April 12, 2012 at 4:00 PM PT