LivingSocial is hacked, affecting 50 million worldwide

NICHOLAS KAMM/AFP/GETTY IMAGES - District-based company said attack did not compromise customer credit card information, financial information.

Daily-deals company LivingSocial acknowledged Friday that it had experienced a cyberattack that accessed the names, e-mail addresses and birth dates — and even encrypted passwords — of 50 million customers worldwide.

The hack did not compromise customer credit card information or the financial information of LivingSocial merchants, according to an e-mail to employees and customers from chief executive Tim O’Shaughnessy.

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The cyberattack affected LivingSocial customers in North America, Australia, New Zealand, United Kingdom, Ireland and Malaysia and its LetsBonus users in Southern Europe and Latin America.

Those customers had data stored on a company server that was compromised, according to spokesman Andrew Weinstein. LivingSocial is requiring all of those customers to reset their passwords. The old passwords were encrypted, making them difficult for hackers to exploit, Weinstein said.

LivingSocial’s other Asian subsidiaries, Ticketmonster and Ensogo — located in South Korea, Thailand, Indonesia and the Philippines — keep information on a different set of servers and were not affected.

The hack was first reported Friday by the online publication All Things D.

A LivingSocial spokesman confirmed the attack, which follows breaches in other big online companies such as Zappos and Linked­In.

The cyberattack was disclosed on the same day that LivingSocial reported first-quarter earnings. The District-based company cut its operating losses nearly in half during the period as revenue surged and cost-cutting efforts took hold.

The firm reported an operating loss of $44 million for the quarter, compared with a $91 million loss during the same period a year ago, according to a regulatory filing. Revenue jumped to $135 million during the first quarter, compared with $110 million a year earlier.

LivingSocial’s reduced losses, a rare bright spot in recent months, likely reflects the massive cost-cutting and reorganization the company undertook over the past year, including closing many overseas operations and eliminating 400 jobs in the United States in November, with 160 of those in the District.

The company has endured several executive shake-ups. Last month, co-founder and chief technology officer Aaron Batalion announced he was leaving the company, nearly a year to the day that another co-founder had resigned.

“There is a lot of problems” in the daily-deals space, including buyers who fail to use their coupons or who tire of the deals and don’t buy them any more, known as “deal fatigue,” said Mary Song, chief executive of Propel Media, an online marketing consulting firm.

But LivingSocial’s latest financial results show that there is a likely path forward, Song said. “I think [the company] has a future,” she said. “What you will see in 2013 is they will cut their losses, restructure, come out and survive as a company. But not as it exists today.”

The firm, for example, will need to invest in delivering its deals to consumers in a new way — through their smartphones, she said. “The future is in mobile applications. Mobile apps do have monetization.”

To breathe life into its offerings, LivingSocial has added new lines of business, pitching offers such as travel getaways, restaurant takeout and live events, some of which have been successful.

Living­Social is a private company and does not disclose its financial figures. But its financial results are contained in a Securities and Exchange Commission report filed by online retailer Amazon.com, which owns 29 percent of LivingSocial.

Amazon has invested as much as $200 million in the company and it reported an additional $56 million investment during the first quarter, which was probably part of a $110 million cash infusion that LivingSocial reported in February.

At the time of the February cash infusion, LivingSocial was valued at about $1.5 billion, a fraction of what it was worth just two years ago. Amazon said in the filing that the book value of its LivingSocial investment continues to drop. It was $36 million, down from $52 million as of Dec. 31, 2012.

LivingSocial declined to comment on the financial figures.

It recorded a net loss of $50 million for the quarter, down from a $135 million profit a year ago. The 2012 profit was a one-time gain due to valuation adjustments for its overseas acquisition.

According a source familiar with the company, who spoke on the condition of anonymity because the company is not public, LivingSocial has reduced the rate it burns through cash to single-digit millions in this quarter, which was much higher in the past.

In short, the company continues to lose money but at a slower rate.

Young Internet companies can often take several years to reach profitability, and LivingSocial is no exception. The company lost $650 million in 2012 compared with $499 million in 2011.

O’Shaughnessy has told employees that he expected the company to begin turning a profit this spring. (O’Shaughnessy is the son-in-law of Donald E. Graham, Washington Post Co. chairman and chief executive.)

 
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