LivingSocial Not Going Out in Public

Despite all its drama, Groupon still is the dominant player in the daily-deals
space. But that probably does not matter much. In light of the tough market
conditions, it looks increasingly unlikely that Groupon will launch its IPO this
year. No. 2 daily-deals player LivingSocial probably will share the same fate.
According to a Bloomberg report, it looks like LivingSocial instead will raise
$200 million in private capital. JPMorgan (NYSE: JPM ) is expected to lead the
financing. This is certainly a big letdown. After all, it was not long ago that
LivingSocial was planning to raise at least $1 billion in an IPO, with a
valuation of $10 billion. The company even was able to raise $400 million in
April, including marquee investors like Amazon (NASDAQ: AMZN ). So now it
appears LivingSocial is ramping down its expectations. But the company still
needs the cash as it continues to navigate a brutally competitive environment.
For instance, Google (NASDAQ: GOOG ) remains committed to building a strong
business in the space the search giant recently purchased Germany's
DailyDeal.de, as well as restaurant reviewer Zagat. Besides, the industry is
showing signs of daily-deals "fatigue." That is, users are getting a deluge
of offers in their email boxes. Might they just eventually ignore them or
unsubscribe? As a result, LivingSocial is morphing its strategy, such as by
focusing more on national brands. To this end, the company recently put together
a daily-deals program for Whole Foods (NASDAQ: WFMI ). While it is getting
traction, the margins probably are low at least compared to mom-and-pop
merchants. LivingSocial should be able to raise another round of capital. For
the most part, the private market still is frothy. But the valuation might not
necessarily hit the company's goal of $6 billion. And with less cash in the
treasury, it probably will mean LivingSocials growth rate will trail off even
more. Tom Taulli is the author of "All About Short Selling" and "All About
Commodities." You can also find him at Twitter account @ttaulli. He does not
own a position in any of the stocks named here.