Can LivingSocial Reignite Its Once-Bright Future?
The daily deals company had to cope with an erroneous report about its $110 million funding round, a hack of customer information and a sloppy shutdown of its local-events business.
And, of course, the growing perception by many investors and consumers that daily deals companies are doomed.
But when I sat down with CEO Tim O’Shaughnessy at the company’s Washington, D.C., headquarters a few weeks ago, the company co-founder was decidedly upbeat.
One of the main reasons for that, he told me, is the company’s product pipeline. “We are going to have more product development that occurs in the next six or nine months than we’ve had in the last two years,” he said.
LivingSocial — which has a significant investment from online retail giant Amazon — is certainly going to need it.
Revenue grew just six percent in the first half of the year, to $264 million, at a time in the company’s life cycle when many high-profile Internet startups would just be hitting their stride. LivingSocial also recorded a net loss of $81 million in the same period.
In discussing those numbers, LivingSocial made sure to provide explanations — or excuses, depending on your point of view — for each. First, it said, the loss isn’t as bad as it looks, because a little more than $64 million of the $81 million loss comes from non-cash expenses such as depreciation, amortization and stock compensation.
As for sluggish revenue growth, the company laid partial blame on the hack, which resulted in all LivingSocial users being prompted to reset their passwords. LivingSocial estimated that it took a 15 percent to 20 percent revenue hit in the months immediately following the event. The company noted that it had posted an operating profit in March and June, with April and May falling short, it said, for hack-related reasons.
O’Shaughnessy wouldn’t make any guarantees for the rest of the year, but he gave a sunnier outlook. “If things shape up how we think they’ll shape up, I think that by end of year we will have permanently and fundamentally answered that [profitability] question,” he said.
To get there, new initiatives are going to have to be more successful than past ones.
One will be LivingSocial’s software-as-a-service product — developed through the acquisition of a company called Onosys — that gives independent restaurants and small chains the ability to allow online ordering on their own site. Onosys already does the same for big-name chains such as Applebee’s and Panera.
Outside of this, the company’s track record on food-related new-business ideas hasn’t been great.
Its first crack at the category — Takeout & Delivery — which let LivingSocial subscribers order food through LivingSocial instead of going to a restaurant’s own website, was shut down. (Its predecessor, LivingSocial Instant, also flopped.) And the high-end Room Service business is also no longer around.
“I think that if everything we tried worked, that would be a very, very, unique situation to be in, and probably mean we weren’t taking enough risk,” O’Shaughnessy said.
The company is also looking to move away from its overdependence on delivering time-sensitive deals via email, by building a searchable database of long-term deals on its own site and mobile apps that makes LivingSocial more of a destination. The hope — and grand vision — is that whenever someone is looking for any type of local service, they will search LivingSocial first.
But this strategy is much the same as Groupon’s, and it’s still not clear how LivingSocial will differentiate. It is early days, though, as the company just launched a search function on its site earlier this summer.
On the merchant side, LivingSocial recently rearchitected the Web platform, finally allowing business owners to do things such as manage several discount campaigns from one account. A streamlined platform, the company believes, will help it build longer-term relationships with its clients.
“Consumers still view us and people still write about us as being in the daily deals space and, frankly, that’s not what we are anymore,” O’Shaughnessy said. “For consumers, we are a marketplace … for merchants, we’re a marketing platform. I don’t think people realize that yet.”
As a result, LivingSocial will launch marketing campaigns later this year to help tell that story. The company’s marketing spend is down 90 percent from two years ago, CFO John Bax said, but it has to invest in the area now to attempt to alter consumer perception and drive people to its deals database. It is also working on optimizing its deal pages so they rank high in search results, since many of them now last more than a day, and are eligible to be indexed by Google.
One bright spot is Korean e-commerce subsidiary, called TicketMonster — or TMon — which LivingSocial acquired in 2011. On a recent day, TMon’s homepage featured a Krispy Kreme donut pack, which more than 110,000 people had purchased.
TMon recorded positive EBIDTA in the first half of this year, LivingSocial said, and is on track to generate $1 billion in gross billings this year. TMon’s cut on sales is somewhere in the teens percentage-wise, meaning that revenue is on track for between $100 and $200 million. More than 46 percent of total sales are completed on mobile devices.
But, as that business prospers, new obstacles are mounting. The e-commerce industry is facing some headwinds in Korea, with eBay making note of the soft macroeconomic climate there on its last earnings call.
And new changes to Google’s Gmail product, which filters marketing emails such as LivingSocial’s into a separate inbox, has gotten the company’s attention. That’s because between 25 percent and 30 percent of LivingSocial subscribers use Gmail to receive the company’s emails, O’Shaughnessy told me. The company maintains that it hasn’t seen any “material differences” in email open rates or revenue from Gmail-opened emails, although it is still early.
So, how much wiggle room does the most recent $110 million funding round give the company? How quickly will LivingSocial go through it? O’Shaughnessy shrugged off the question. He said if — and it’s a big if — the company can main operational profitability, the funding is there to take advantage of opportunities that pop up. At the same time, he admitted that it can be a cushion for “bumps in the road.”
In the end, LivingSocial believers can look at the company’s revenue numbers and say they’re impressive for a company that’s just four years old. Detractors can point to the funding needed to get there, more than $900 million, weak company morale that O’Shaughnessy describes as “transitioning” and a murky road map to reinvigorate growth.
But O’Shaughnessy doesn’t appear bothered by the negative perception.
“The cycle of how people’s perception shifts changes so fast,” he said. “Two years ago, the perception of us was one thing; two years from now, it’ll be very, very different than it is now.”
A few days after our conversation, O’Shaughnessy tweeted a link to a Business Insider post about the rise, and fall, and then rise of Priceline.
“Love this,” O’Shaughnessy wrote in the tweet, and then included a passage from the post: “Over the long haul, perception is not reality. Reality is reality.”
Then again, as he also knows from the last 12 months, reality can also bite.