LivingSocial Losses Shouldn’t Shock

LivingSocial's losses were revealed in paperwork filed by Amazon.

Image: LivingSocial

LivingSocial lost money and lots of it: $558 million on $245 million in revenue in 2011.

This news was revealed Wednesday within the security filings of Amazon.com, which owns a stake in the daily deal company and—as the Washington Business Journal points out today—was compelled to record it because of the level of equity interest it has in the company, which is 31 percent.

The level of losses surprised some, because LivingSocial has tried to distance itself, image-wise, from Groupon, which became the focus of criticism after its losses were laid bare in the paperwork filed to go public. What's more, the losses are a lot bigger and the revenues a lot less than those of Groupon, which on its results for the nine months ended September 30 recorded a net loss of $238 million on revenues of $1.1 billion.

But careful followers of the daily deal market shouldn’t exactly be gasping. After all, LivingSocial may have a different management style than Groupon, with Tim O’Shaughnessy playing the straitlaced CEO to Groupon’s Andrew Mason having a more offbeat leadership style, but at the end of the day, the two companies are following a very similar business model, rapid-fire growth included.

That fast growth—the same growth we’ve seen with Zynga, LinkedIn, and Facebook (which certainly isn’t hurting for profits now)—is one reason for the losses.

As for more specific ones, a source with knowledge of LivingSocial’s financials told the Washington Business Journal that much of that operating loss was incurred earlier in 2011, and that the losses narrowed later in the year as the company scaled back marketing expenses, a budgetary move that Groupon also made. The revenue also doesn’t take into account LivingSocials' overseas operations, the source said, adding that part of the loss can be attributed to a series of acquisitions paid for through a mix of cash and stock.

So while LivingSocial’s losses should not totally surprise, the filing is a reminder that an e-commerce giant has LivingSocial’s back—or is on its back, as the case may be—as Groupon is continuing to carve out its own path.

Whether that path leads to profits for Groupon or LivingSocial, and how and when that will be achieved, is the news that will really turn heads.