Amazon Loss Shines Bad Light on LivingSocial

LivingSocial CEO Tim O’Shaughnessy. Photo by Lars Paronen, Reuters.
(Reuters) – Inc’s first quarterly net loss in more than five years on Thursday highlights the trials of LivingSocial, Groupon Inc’s closest rival in the daily deal industry.

Amazon said its third-quarter net loss was $274 million, or 60 cents a share. The world’s largest Internet retailer said $169 million of those losses were driven by an impairment charge from Amazon’s 29 percent stake in LivingSocial.

Amazon invested $175 million in LivingSocial in late 2010, at the height of the daily deal frenzy when sector leader Groupon was growing at record speed. Since then, investors have soured on the business. Groupon shares have lost about three quarters of their value since the company went public in 2011.

LivingSocial Chief Executive Tim O’Shaughnessy addressed Amazon’s $169 million loss in an email to employees on Thursday. Reuters obtained a copy of the memo.

“You’re likely to see news articles saying that we hurt Amazon’s earnings and lost a ton of money,” the CEO wrote. “That doesn’t tell the full story.”

LivingSocial generated about $124 million in third-quarter revenue, while its operating expenses were approximately $193 million. The company had an operating loss of around $565 million and a net loss of about $566 million for the quarter, the CEO reported in the memo.

However, O’Shaughnessy said more than 95 percent of its losses in the quarter were non-cash items. The biggest of those was a charge of about $496 million to write down the value of companies LivingSocial had acquired last year.

“The market has also dropped over that same time for similar public tech companies,” O’Shaughnessy wrote. “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 generated positive operating cash flow in September, the first time that has happened since 2009, the CEO noted.

“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.

LivingSocial also gained market share from Groupon from August to September, the CEO said, citing data from daily deal tracker Yipit.

(Reporting By Alistair Barr; Editing by Chris Gallagher)

Image Credit: LivingSocial CEO Tim O’Shaughnessy. Photo by Lars Paronen, Reuters.