What really happened at LivingSocial? • Hacker News Board

Re: What really happened at LivingSocial?

#41

Post by kjackson2012 » Thu, Feb 21, 2013, 6:55 PM UTC

mattmaroon wrote: post #26

ebbv wrote: post #9

What I don't get is this; how does Living Social do ~$500mm in revenue and still fail to be in the black? It's not like they have any physical merchandise. All their expenses should be personnel, servers and bandwidth right? How are they bleeding through over $500mm in a year then? All the employees are overpaid? Paying too much for servers?

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.

Re: What really happened at LivingSocial?

#42

Post by tptacek » Thu, Feb 21, 2013, 6:56 PM UTC

dailyrorschach wrote: post #39

Well now the story is updated. Quoted below: UPDATE: Just got off the phone with Hamadeh, 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 spokesman prior to publishing, and sent hi…

This is exactly what I would do if I was an evil publication: make a prediction as to the trendlines of a business, write up a report full of false evidence, send a draft to the target and then declare it was the target's responsibility, not mine, to ensure that my report was correct.

What's different after this followup is that now CNN/Fortune is suspect too, because repeating this verbatim is unethical.

Re: What really happened at LivingSocial?

#43

Post by AntiRush » Thu, Feb 21, 2013, 6:56 PM UTC

ebbv wrote: post #9

What I don't get is this; how does Living Social do ~$500mm in revenue and still fail to be in the black? It's not like they have any physical merchandise. All their expenses should be personnel, servers and bandwidth right? How are they bleeding through over $500mm in a year then? All the employees are overpaid? Paying too much for servers?

If we look at Groupon as a model, it becomes clear that SG&A is the major expense for a deals company like Living Social.

Earlier in its existence, marketing was also a huge cash sink for Groupon. This has improved for them as their product matured, but it's likely that Living Social is still spending a huge amount here, too.

http://investor.groupon.com/releasedetail.cfm?ReleaseID=7002...

Re: What really happened at LivingSocial?

#44

Post by losvedir » Thu, Feb 21, 2013, 6:57 PM UTC

tptacek wrote: post #2

LivingSocial's response is extremely damning of "PrivCo".

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 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.

I'm not sure if he's just trying to salvage a poor decision to go forward with this article, or if there's actually something here, though.

Re: What really happened at LivingSocial?

#45

Post by officemonkey » Thu, Feb 21, 2013, 6:59 PM UTC

mikek wrote: post #19

> our major competitor's market cap is now $3.9B He can't say "Groupon?" Seriously?

Never define yourself by the competition.

Re: What really happened at LivingSocial?

#46

Post by tptacek » Thu, Feb 21, 2013, 7:00 PM UTC

losvedir wrote: post #44

tptacek wrote: post #2

LivingSocial's response is extremely damning of "PrivCo".

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…

The update makes PrivCo look even worse, by implying that it was LivingSocial's responsibility to ensure that their bogus report was accurate. Look, I can play that game right now: I'll write a 3 page report on Dropbox's impending bankruptcy, send it to them, and when they don't respond report it as fact.

Re: What really happened at LivingSocial?

#47

Post by milkshakes » Thu, Feb 21, 2013, 7:01 PM UTC

tptacek wrote: post #42

dailyrorschach wrote: post #39

Well now the story is updated. Quoted below: UPDATE: Just got off the phone with Hamadeh, 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 spokesman prior to publishing, and sent hi…

This is exactly what I would do if I was an evil publication: make a prediction as to the trendlines of a business, write up a report full of false evidence, send a draft to the target and then declare it was the target's responsibility, not mine, to ensure that my report was correct. What's different after this followup is that now CNN/Fortune is suspect too, because repeating this verbatim is unethical.

> What's different after this followup is that now CNN/Fortune is suspect too, because repeating this verbatim is unethical.

You trusted them before?

Re: What really happened at LivingSocial?

#48

Post by driverdan » Thu, Feb 21, 2013, 7:01 PM UTC

jbail wrote: post #30

graycat wrote: post #21

Did PrivCo or some related business entities have a short position in LivingSocial when the PrivCo statement was made on LivingSocial? Well, not in any simple sense since apparently LivingSocial is not public yet. But a short position on a related company?

Can you have a short position in a privately held company? I don't think so, but maybe there's a financial vehicle for that.

You could have a contract to sell that would function similarly to futures or options. I doubt anyone would take the other side of a contract like this for LivingSocial though.

Re: What really happened at LivingSocial?

#49

Post by tptacek » Thu, Feb 21, 2013, 7:02 PM UTC

milkshakes wrote: post #47

tptacek wrote: post #42

Earlier quoted context omitted.

This is exactly what I would do if I was an evil publication: make a prediction as to the trendlines of a business, write up a report full of false evidence, send a draft to the target and then declare it was the target's responsibility, not mine, to ensure that my report was correct. What's different after this followup is that now CNN/Fortune is suspect too, because repeating this verbatim is unethical.

> What's different after this followup is that now CNN/Fortune is suspect too, because repeating this verbatim is unethical. You trusted them before?

More than I trust TechCrunch, less than I trust Reuters.

Re: What really happened at LivingSocial?

#50

Post by damoncali » Thu, Feb 21, 2013, 7:02 PM UTC

eduardordm wrote: post #5

tptacek wrote: post #2

LivingSocial's response is extremely damning of "PrivCo".

What I do not understand is: what does an 'investor' expects 'injecting' 110 million dollars on a bankrupt business? There is nothing livingsocial can do to revert its current trajectory. It's not about the company, but the very core of its business model does not work, not one but dozen of similar companies failed early, are livingsocial and groupon trying to run some sort of ponzi scheme on desperate investors and…

Most likely, a quick liquidation for something a little more than 110M. Given that they appear to be first in line, it could be a nice return, even if the totality of the investment is a dog.