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LivingSocial Bleeding

Posted on Friday, Nov 9th 2012

According to research by BIA/Kelsey, U.S. consumer spending on online deals is projected to double this year to $3.6 billion. The researcher estimates that the market will be worth $5.5 billion by 2016. But increasing revenues are not guaranteeing a strong financial performance for the players in the sector.

LivingSocial’s Financials
LivingSocial’s financials are becoming a drag on investors’ results. Recently, Amazon announced its quarterly performance and shocked the market by declaring a loss on their investment in LivingSocial. Amazon holds a 31% share of LivingSocial. During the last quarter, Amazon announced a write-off of $169 million on account of impairment of goodwill and other assets invested in LivingSocial. To date, Amazon has invested $175 million in LivingSocial, and the recent write-off nearly wipes out its investment.

LivingSocial’s financials are not publicly disclosed. However, according to a recent report, last quarter the company earned revenues of $124 million. It ended the quarter with a loss of $566 million. It claims to have more than 70 million users in 613 markets worldwide. Management attributes the loss on revaluation of entities acquired during the previous year.

LivingSocial Improves Market Standing
On the brighter side, revenues for the quarter have more than doubled over the year and the company’s market share continues to improve. According to Yipit’s data, LivingSocial’s market share in the U.S. grew from 21% in August to 24% in September. Competitor Groupon saw its market share slide from 56% to 53% during the same period.

LivingSocial’s market performance was helped by the fact that during this period, it had offered a Starbucks deal of a $10 gift card at the price of $5 each. Analysts believe that the deal was the best selling daily deal ever as 1.5 million gift cards were sold. The number was significantly higher than an earlier record of 1.1 million Amazon gift card sales established by LivingSocial. According to Yipit’s reports, of the ten highest selling daily deals in the U.S., LivingSocial lays claim to six.

LivingSocial’s IPO Plans
Meanwhile, LivingSocial seems to have slowed down on its plans for an IPO. In a recent discussion with FOX Business Network, LivingSocial’s CEO, Tim O’Shaughnessy, confirmed that as of now, the company is not eying the stock market and is instead focusing on gaining market share of both customers and merchants. As part of this focus, it is slowing down on its acquisition spree and instead consolidating investments and efforts. Recently, LivingSocial shut down its Middle East operations and is integrating other international operations it is are not able to support, primarily due to “language differences.” The company plans to leverage relationships with merchants to continue to offer a wider variety of products, services, and experiences to consumers.

Over the past year, LivingSocial’s business model has evolved, albeit in a scattered manner. It has come a long way from when it used to be more a coupon company that offered discounts for local businesses and charged a commission of as much as 50% of the coupon value as their revenues. Earlier this year, it acquired a physical building where it lets local merchants host events for consumers. It also tied up with event services provider, AEG,  to sell undiscounted tickets as experiences. But as I said before, the company does need to figure out better ways of monetizing its big customer base and rethink its business model to make it a more sustainable one.

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