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LivingSocial posts $566 million loss as acquisitions drop in value

By Steven Overly,October 25, 2012

Employees work in D.C.-based LivingSocial. The online deal purveyor recorded… (Astrid Riecken/FOR THE…)

LivingSocial posted a net loss of $566 million for the third quarter after it wrote down the value of several daily deal firms it acquired last year.

The D.C.-based online deal purveyor spent millions of dollars from investors buying like-minded companies in foreign countries last year, and it is unclear whether the acquisitions can regain their value.

Overall, LivingSocial recorded about $124 million in revenue during the quarter, a 10 percent decline from the $138 million it pulled in during the second quarter. Meanwhile, operating expenses fell 17.5 percent, to $193 million.

LivingSocial is a privately held company; details about its quarterly financial results were disclosed in a message chief executive Tim O’Shaughnessy sent to employees Thursday that was obtained by Capital Business. (O’Shaughnessy is the son-in-law of Donald E. Graham, chairman and chief executive of The Washington Post Co.)

O’Shaughnessy’s note said the quarterly loss included $496 million related to the decline in value of recent acquisitions and an additional $45 million related to stock compensation and other items.

“As you know, the market has also dropped over that same time for similar public tech companies,” O’Shaughnessy wrote in the memo. “Those changes in valuation showed up as an ‘impairment’ in our financial statements, but they do not affect the day-in, day-out operations of the business.”

LivingSocial has attempted to sell off some of its international operations, including a daily-deals Web site in the Middle East that was shuttered earlier this year.

Still, O’Shaughnessy said the company is gaining market share in North America compared with its competitors. September, he wrote, brought the company its first month of positive operating cash flow since 2009.

“In other words, we ended the last month of the quarter with more money in the bank than we had at the beginning of the month, marking an important milestone on our path to profitability and long-term success,” he wrote.

More details about LivingSocial finances could come Friday when Internet giant Amazon.com, which owns nearly a third of LivingSocial after investing in the company two years ago, files its own financial report with the Security and Exchange Commission.

Recent Amazon filings have shown LivingSocial’s losses narrowing. The company posted a net loss of $93 million during the second quarter, an improvement from a $198 million loss during the same period in 2011.

Sentiments on Wall Street about LivingSocial’s prospects have been intrinsically tied to competitor and market leader Groupon. The Chicago-based firm went public last November to much fanfare, but its stock price has fallen since.

Both companies have sought to diversify beyond the daily deals business that brought them such rapid success. LivingSocial and Groupon now sell travel getaways and day-to-day consumer goods, often at steep price discounts.

LivingSocial has invested heavily in creating one-of-a-kind events, such as taco nights and beer-tasting festivals, in partnership with local merchants. An events space at 918 F St. NW in Washington opened in February as a venue for concerts, cooking demonstrations and art classes.

A spokesman for the company declined to comment.