Very Important Facts About Amazon and LivingSocial
I have read several messages about how fast LivingSocial is growing and the potential it has for Amazon. I am amazed at the stupidity of retail longs. First, you need to understand that LivingSocial is not part of Amazon! LivingSocial is its own (non-public) company. Amazon has only a 29% investment in LivingSocial (minority stake). Secondly, LivingSocial has operating losses of $753 million in the first 9 months of 2012! If they continue to lose at the same rate for the final quarter of 2012, LivingSocial will have operating losses of over $1 billion for the entire year! That is an incredible amount of money to lose . I don't understand how anyone could possibly get excited over any company that loses that kind of money, all of which has been funded by venture capitalists and Amazon (be aware that since Amazon has only a minority stake they don't show these losses on their income statement).
It does show up on the income statement as "Equity investment method" .. AMZN has to value its investment in them each Q and place the value change in the income statement. Anytime a company owns 20% or more of something that have to inlcude the valaution in their financials. in teh 1st three Q's of 2012, they claimed a $110M loss in that investment. Look for it continue to take losses, as I hear living social is not doing well and they laying off employees.
I don't think it has anything to do with whether they take losses, it has to do with the market value piece of Living Social which probably has increased like GRPN off the raging market rally lows since Nov 16. So they could see a writeup and no a writedown on that basis. It's about the company's valuation, not what they made.