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LivingSocial Continues Its Descent

Posted on Tuesday, Sep 10th 2013

LivingSocial’s troubles in the waning daily deals space are not easing. Analysts were once very positive about the market space and were projecting 47% annual growth rates, with market value that was projected to grow to $6 billion by 2015. But since then, projections have become more conservative. Market leader Groupon has seen its valuations tumble since it went public and disappointing performance led to the company firing founder Andrew Mason from the position of CEO.

LivingSocial’s Financials

LivingSocial does not publish its results, but since Amazon owns 29% of the company’s shares, its key financials are available in Amazon’s quarterly release. For the six months ended June 2013, the company saw revenues grow 6% over the year to $264 million. Losses widened for the period, and LivingSocial ended the six-month period with a loss of $81 million, compared with earnings of $65 million a year ago.

LivingSocial’s Growing Worries

LivingSocial’s worries are not restricted to the domestic market. Earlier this year, LivingSocial had announced plans to turn profitable this year, but losses have continued to widen. The company has struggled to reorganize its portfolio to get rid of non-performing businesses. As part of this shuffle, it decided to shut down its Adventures business, which was responsible for local-events. Adventures did not end up delivering the margins that LivingSocial had anticipated. Shutting down of Adventures also called unnecessary media attention when LivingSocial fired 30 employees from these operations but had to reinstate their services temporarily the very next day.

Within international markets, things are getting choppier. Recently, LivingSocial’s servers were hacked and of their 70 million subscribers, nearly 50 million accounts worldwide were breached. The hackers managed to extract customer names, emails, birth dates and passwords. Luckily for the company, credit card details for these customers and their merchants’ financial and banking information were not hacked. But the hack did hurt revenues, and LivingSocial estimates that the revenues fell 15-20% in April and May, the months following the attack

LivingSocial also appears to be looking at getting out of some international markets. Two years ago, LivingSocial was looking at international markets rather favorably and acquired daily deals site Ticket Monster as part of its market expansion plans in South Korea. But recent market reports suggest that LivingSocial may now be looking at a way to exit that market. LivingSocial is rumored to have hired JP Morgan to underwrite the sale of Ticket Monster.

LivingSocial’s Expansion Plans

Meanwhile, LivingSocial is investing heavily in product development and hopes to release several new products during the remainder of the year. The biggest product expected to be released soon is its software-as-a-service (SaaS) product for restaurants. Last year, LivingSocial had acquired Onosys for an estimated $6.5 million. Onosys’s products enable restaurant patrons to order online through the restaurant’s site. The new product will help LivingSocials’s members to order from restaurants and small chains through the LivingSocial site.

Recently the number of promotional mails to consumers have increased so much that subscribers don’t necessarily read the daily deal mails that they receive. Instead, they like to visit the sites when they are looking for an offer. Add to that the recent mail system change by Gmail, which segregated consumer mailboxes into Primary, Social and Promotion. Now Gmail users see the more important mails in their Primary mail box, followed by social mails in the Social mail box. All promotional mails have been shifted to the Promotions mailbox. LivingSocial maintains that the new mailbox has not hurt its usage, but it is widely known that daily deals are dependent on email to attract customers. LivingSocial is hoping to reduce dependence on mail boxes and on daily deals by maintaining a database of longer lasting promotions on the site.

LivingSocial is optimistic that things will turn around. How long will it take for that to happen is any one’s guess. For now, it appears that LivingSocial will continue to experiment with its offerings to see which of them clicks.

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