October 26, 1:30 pm EST – LivingSocial's (PrivCo Private Company Ticker: LIVINGP) financials just obtained by PrivCo prove that the company is in deep water in an increasingly out of favor daily deals market.

 Click Here To See An Internal Email Just Released By LivingSocial's CEO To All Employees This Morning

 

LivingSocial CEO Tim O'Shaughnessy's attempt to reassure employees that things aren't as bad as they look:

 "This afternoon, our investor and partner Amazon.com announced its quarterly earnings. Because our financials for the quarter had a material impact on its results, Amazon included some information about our numbers in its announcement. From those announcements, you’re likely to see news articles saying that we hurt Amazon’s earnings and lost a ton of money. That doesn’t tell the full story, so I wanted to share some more info on our third-quarter results with you, so you — and the customers you serve — can better understand what they mean." Source: LivingSocial CEO Internal Email To Employees (10/26/12)

 LivingSocial's Financial Performance (note, includes an impairment charge on acquisitions LivingSocial materially overpaid for):

 "We had roughly $124 million in revenue last quarter, our operating expense was approximately $193 million, and we had an operating loss of around $565 million and an overall net loss of about $566 million for the quarter." Source: CEO Email

CEO's Admission That Acquisitions Were Worthless:

"Sounds like a lot of losses, right? Well, what the numbers don’t fully explain is that more than 95% of our estimated losses in the quarter involved non-cash items, in particular an estimated charge of around $496 million related to the write down of “goodwill” in acquisitions we made last year.  In layman’s terms, we took a charge of around $496 million because we had to revalue some of the companies we acquired last year." Source: CEO Email

 

PrivCo's Summary Of Financial Results:

(Note: Operating Loss excludes impairment charges, which would add an additional $496 million to Living Social's 3rd Quarter Operating Loss, for a total of $565 Million)

 PrivCo Conclusions:

  • According to Amazon's (NASDAQ: AMZN) accountants, its 29% ownership of LivingSocial is only worth $94 million, giving LivingSocial an implied valuation of $325 million according to PrivCo calculations.  
  • Given its latest valuation of $5.7 billion from its Series F round in December 2011, its current $325 million valuation is a staggering 94% discount to its December 2011 valuation.
  • Key losers therefore are Lightspeed Venture Partners, Amazon and JP Morgan who invested $176 million for 3.5% of LivingSocial in its most recent Series F round.
  • At LivingSocial's current pace, it cannot service more than 12 months of operations without raising capital at a dilutive valuation, given Amazon's new fair value of the company, or slash staff and bring operating expenses down. 

 

PrivCo's CEO and Founder Sam Hamadeh stated: "We assume at this point Amazon will refuse to fund further operating losses at LivingSocial, which will likely now be forced to undertake massive layoffs and cost restructuring, absent access to any further external financing, with Amazon likely having determined that enough is enough given its LivingSocial investments are now causing its publicly reported earnings misses.  But it will probably be too little too late for LivingSocial to survive as a going concern as its deteriorating financial results clearly demonstrate that its business model has unraveled."

 

Note: LivingSocial's spokesman, Brandon Lewis, declined to provide an official statement to PrivCo. Other inquiries to Lightspeed Venture Partners were unreturned in time for publication. 

 

Key Financial Data On LivingSocial (Source: PrivCo):

Business: Daily Deals

Founded: 2007

Key VC / PE Backers: Lightspeed Venture Partners, Amazon, JP Morgan, Grotech Ventures, U.S. Venture Partners, Revolution Ventures, T. Rowe Price. 

2012 Revenue (Projected): $520 M 

2011 Revenue: $245 M

Employees (2011): 4800 

 

  Click Here To See An Internal Email Just Released By LivingSocial's CEO To All Employees This Morning

 

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