Bad News for Daily Deals Investors

I’ve got bad news for any investor with a penchant for masochism who’s looking to invest in the daily deals business: LivingSocial isn’t planning on going public anytime soon.

The good news? Groupon (Nasdaq: GRPN  ) is still about 50% off from its $20 IPO price! Glancing at today’s trading volume, there have been three million buyers today, so this deal is on!

LivingSocial CEO Tim O’Shaughnessy recently said that his daily deals company has taken note of all the recent IPO flops, specifically including Groupon and Facebook (Nasdaq: FB  ) , and isn’t interested. There were some prior expectations that the company was considering going public last year. O’Shaughnessy said that there are generally four reasons for companies to go public: branding, access to capital, liquidity needs, or currency for use in M&A deals.

None of these currently apply to LivingSocial, but he said that the company would consider going public if “any of those four things is ever very prohibitive to us.”

Thanks to Amazon.com’s (Nasdaq: AMZN  ) investment in the company, we know that it lost $558 million last year on revenue of $245 million. The e-tail giant also recently disclosed in a 10-Q that LivingSocial’s first quarter saw revenue of $110 million, resulting in a $92 million operating loss.

It’s pretty mind-boggling why other giants, like Google (Nasdaq: GOOG  ) and Microsoft (Nasdaq: MSFT  ) , want in on the space, recently launching Google Offers and MSN Offers, respectively. There are also countless local entrants, who are all anxious to hop in on the losing proposition, which they’re more than welcome to do, because there are virtually no barriers to entry in this business.

Sadly, there are also no competitive advantages. That’s not stopping LivingSocial from trying to set itself apart, though, launching new services and packaged offerings. CFO John Bax said that the company has stopped raising additional capital after bringing in $176 million in financing, according to Reuters.

As if daily deals investors didn’t already have enough to worry about, they won’t be able to get their hands on LivingSocial directly anytime soon. I guess there’s still always Groupon.

The smart investors have been staying away from the daily deals business. Instead, they’ve been buying these stocks. Grab yourself a copy of this free report for more info.

Fool contributor Evan Niuowns shares of Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft, Amazon.com, and Facebook. The Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Amazon.com, Microsoft, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy.

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  • Report this Comment On June 22, 2012, at 12:50 PM, itsells wrote:

    Only a fool would not know that there are barriers to entry, because he who has not tried will never know. My case in point. I'm a competitor to the daily deal companies and I'm not a fool. For I am the one who knows of such a barrier. It's called mobile advertising and it's $100,000 to get in. You can't tell me that the majority of 2,000 plus daily deal companies out there even have $100,000 to invest or even want to put the majority of their marketing dollars into mobile advertising, but for most, they just don't have it and never will, so there you go, a barrier to entry my case in point. Only extremely high capitalized and invested daily deal sites will get in. Mobile advertising is not a bad place to put your marketing dollars, but it's not the most lucrative, so I acclaim to become the first daily deal company to make a profit and dominate all daily deak sites.

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