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What really happened at LivingSocial?

finance.fortune.cnn.com

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Re: What really happened at LivingSocial?

#131

Post by mattmaroon »

kjackson2012 wrote: post #41
mattmaroon wrote: post #26

Earlier quoted context omitted.

It's gross revenue rather than net. Take 50% off the top for paying merchants. Then the expenses you mentioned (sales cost, software design, hosting, etc.). My guess though is that their major cost is customer acquisition. That seems to be the norm in this space. They're buying customers for $5 and making $2.50 off them (numbers theoretical, as an example) hoping to make the rest back later when they've won the marke…

They can't claim the merchants' money as gross revenue, if they are using GAAP. It's the same issue that Groupon ran into and got slapped for.

Groupon changed from "gross revenue" (which did not deduct money paid to merchants) to "net revenue" (which did). I believe they did this willingly because they were going to IPO, not because they were "slapped" or due to GAAP.

Living Social is private and can do whatever they want, but they probably are using net if they're comparing themselves to Groupon. Otherwise they're making themselves look half the size when they are really a quarter, which I suppose could be purposeful.

Re: What really happened at LivingSocial?

#132

Post by trevelyan »

tptacek wrote: post #80
onetimecomment wrote: post #68

privco's sales people e-mailed the address on my company's domain and offered research services. when we declined, four days later an article ran on privco (an 'exclusive') reporting that we refused comment on something we had never seen which was an article full of made-up dire horseshit. so I was left explaining to my employees why this company was out to get us and no, I wasn't misleading them about our finances.…

It's like the shareholder lawsuit shakedown, only targeting private companies.

I have no dog in this fight, but surely it's hypocritical to slam PrivCo while taking the anonymous commenter above at face value. The company is apparently posting further down on this thread -- why not just ask them your questions directly?

This funding round is going to play out in a way that will make it very clear in a few months who nailed the story and whether this reporting is malicious. If PrivCo is guilty of systemic fraud or extortion, there are surely online discussions that can support the claim. As a web entrepreneur myself, I also find the anonymity here puzzling for another reason -- if I had a legitimate grievance with the company I would be doing everything in my power to inject my story into the national media at this point. Free SEO from CNN and other major news outlets? Sign me up.

Re: What really happened at LivingSocial?

#133

Post by PrivCoTeam »

ImprovedSilence wrote: post #119
losvedir wrote: post #44

Earlier quoted context omitted.

Was the "UPDATE" to the article published when you left your comment? UPDATE: Just got off the phone with Hamadeh [PrivCo CEO], who is standing by his original report. He says O'Shaughnessy is misleading his own employees, and that classifying the round as "equity" is a technicality given all of the debt-like provisions PrivCo continues to believe were attached. He also says that PrivCo spoke with a LivingSocial spok…

If they did, in fact, send an email to LS, I would hazard to guess they would send it at 2:30 am.

PrivCo had a full 45 minute phone call with LivingSocial's OFFICIAL SPOKESMAN to fact check data and also get new facts he offered up about the financing round. That was at 4:30pm Thursday. At 6pm Thursday he received the draft report (as he was eagerly expecting) so he could reply suggesting anything factually wrong, and if he wish provide an official statement which PrivCo would include verbatim. NONE were returned to PrivCo. We emailed again at 7pm, no response. Shortly after 10pm ET when our staff finally couldn't stay any later, we published. (FYI most news organizations refuse and NEVER send actual drafts to the subject companies to "mark up". So PrivCo went above and beyond the call of duty.

Re: What really happened at LivingSocial?

#134

Post by officemonkey »

Macsenour wrote: post #126
danielweber wrote: post #104

Earlier quoted context omitted.

They are in a space where mind-share is really important. (I think that mind-share being important is a sign you are in a risky business, but that's neither here nor there.)

But to his own employees? I understand in a public PR, but his letter was internal.

You train like you fight.

Re: What really happened at LivingSocial?

#135

Post by btilly »

PrivCoTeam wrote: post #129
btilly wrote: post #115

Earlier quoted context omitted.

Nobody is debating whether LivingSocial has a world of problems. We're debating the veracity of all of the non-public details that made your report interesting. Well, in theory we are. Only one side of the debate seems to have showed up.

CNN/Fortune story just updated again to say insiders confirm that LivingSocial was down to JUST $28M IN CASH in February right before taking yesterday's financing. Do the math: looking at their 2012 financials on PrivCo: http://www.privco.com/livingsocial-receives-emergency-110m-c... That is, LivingSocial's operating expenses are about $1.4 Billion/year (Revenue + Operating loss = about $1.4 Billion they spend a year…

Take out the $600 million non-cash "goodwill" item they wrote down, and you've got $800 million per year operating expenses. That ups them to nearly 2 weeks.

But they have been trying to get profitable. So they have been cutting expenses and adding revenue. This deal would not be possible without that. Therefore they likely are not losing money as fast as in 2012. So a month or more of runway is perfectly believable.

Next, expenses and revenue tend to come in on different schedules. If that is cash right after you've paid employees, and you have revenue booked but not realized yet, you're in a much better position than if those two are reversed. That could easily add another month.

The result? I suspect CEO's claim of "several months" is possible, but likely optimistic. However I would be shocked if your "7 days" is in the right ballpark. But there is an easy way to check. If you're right, they should have run through this investment inside of 2 months, 3 months tops.

Re: What really happened at LivingSocial?

#136

Post by FireBeyond »

PrivCoTeam wrote: post #133
ImprovedSilence wrote: post #119

Earlier quoted context omitted.

If they did, in fact, send an email to LS, I would hazard to guess they would send it at 2:30 am.

PrivCo had a full 45 minute phone call with LivingSocial's OFFICIAL SPOKESMAN to fact check data and also get new facts he offered up about the financing round. That was at 4:30pm Thursday. At 6pm Thursday he received the draft report (as he was eagerly expecting) so he could reply suggesting anything factually wrong, and if he wish provide an official statement which PrivCo would include verbatim. NONE were returned…

"We'll send you a draft report at 6pm Eastern. If we don't hear from you by 10pm Eastern, we publish."

I'm sure your out-of-hours deadlines were totally non-negotiable, and that holding off on the release til the next morning were absolutely essential, right?

Re: What really happened at LivingSocial?

#137

Post by bitcartel »

jrs235 wrote: post #92
tptacek wrote: post #80

Earlier quoted context omitted.

It's like the shareholder lawsuit shakedown, only targeting private companies.

I wonder if they have short bets (in systems like InTrade or similar shadow trading systems) on the companies they drag through the dirt.

Probably not. First, if you search InTrade you won't find anything related to LivingSocial. Second, it's not legal for anybody in the US to bet via InTrade[1], and Privco is a US company with it's founder Sam Hamadeh based in New York[2].

[1] http://dealbook.nytimes.com/2012/11/26/after-regulatory-sanc...

[2] http://en.wikipedia.org/wiki/Sam_Hamadeh

Re: What really happened at LivingSocial?

#138

Post by bitcartel »

trevelyan wrote: post #132
tptacek wrote: post #80

Earlier quoted context omitted.

It's like the shareholder lawsuit shakedown, only targeting private companies.

I have no dog in this fight, but surely it's hypocritical to slam PrivCo while taking the anonymous commenter above at face value. The company is apparently posting further down on this thread -- why not just ask them your questions directly? This funding round is going to play out in a way that will make it very clear in a few months who nailed the story and whether this reporting is malicious. If PrivCo is guilty o…

Looking at the Founder's background and the roster of corporate clients, PrivCo look fairly legit.

http://www.privco.com/our-team/founder-and-ceo

Re: What really happened at LivingSocial?

#139

Post by tptacek »

bitcartel wrote: post #138
trevelyan wrote: post #132

Earlier quoted context omitted.

I have no dog in this fight, but surely it's hypocritical to slam PrivCo while taking the anonymous commenter above at face value. The company is apparently posting further down on this thread -- why not just ask them your questions directly? This funding round is going to play out in a way that will make it very clear in a few months who nailed the story and whether this reporting is malicious. If PrivCo is guilty o…

Looking at the Founder's background and the roster of corporate clients, PrivCo look fairly legit. http://www.privco.com/our-team/founder-and-ceo

LivingSocial denied unequivocally the following:

* That the investors PrivCo mentioned as participants were participants or even investors in LivingSocial

* That it was a debt round rather than an equity round

* That the liquidation preferences on the deal came close to 4x

* That it repriced existing shareholders

* That quotes attributed to LivingSocial personnel were real

These are not minor details. They are major details. LivingSocial's CEO would have to be lying about very important facts that will inevitably be public. PrivCo, on the other hand, merely needs to claim they were misinformed by their source to extricate itself.

Re: What really happened at LivingSocial?

#140

Post by [deleted] »

tptacek wrote: post #84
larrys wrote: post #83

Earlier quoted context omitted.

"He also says that PrivCo spoke with a LivingSocial spokesman prior to publishing, and sent him a draft of the report with a request for any needed corrections. When nothing came back four hours later, PrivCo published." With respect to the "4 hours later" I would like to know what the standard is in the news business before "going to press" with a story. I'm not entirely certain that a news organization would wait m…

The NYT would be confident in the sourcing of its information if it was rushing something to press. PrivCo's "source" (generously stipulating it exists) didn't even know who LS's investors were.

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