Amazon, the retail and cloud storage giant that sometimes messes with DCist’s operability, released its third-quarter earnings report yesterday, and the news wasn’t great. Though the company’s sales are fine, it took a loss of $274 million.

Why do we care? Because Amazon’s report also included a $169 million hit on its investment in LivingSocial. While the D.C.-based daily deals company isn’t publicly traded (unlike chief rival Groupon), Amazon’s 29-percent stake means part of LivingSocial’s finances are subject to public scrutiny.

And the raw numbers look even scarier. According to a company-wide memo from CEO Tim O’Shaughnessy, LivingSocial’s third-quarter revenue was $124 million on operating expenses of $193 million. But the more shocking figure is the company’s net loss of $566 million.

However, O’Shaugnessy writes that 95 percent of that staggering figure came from $496 million in devaluations of companies LivingSocial has acquired over its growth into a global brand with nearly 5,000 employees. And he adds that those losses shouldn’t affect the company’s daily operations.

And though the daily deal industry’s growth is not what it once was—Groupon’s shares are currently trading around $4.50—O’Shaughnessy says LivingSocial’s situation is improving. “For the third quarter of 2012, our global revenue nearly doubled on a year-over-year basis,” he writes. “More important, for the first time since 2009, we had positive operating cash flow for our company on a global basis in the month of September.”

Whatever the financial outlook might be, there’s one area in which LivingSocial’s numbers are certainly rising—public goodwill. Certainly offering to front the money for late-night Metro service during the Washington Nationals’ playoff run is worth something.

O’Shaughnessy’s full memo:

Hey all –

This afternoon, our investor and partner Amazon.com announced its quarterly earnings. Because our financials for the quarter had a material impact on its results, Amazon included some information about our numbers in its announcement, and current estimates on some of our financials will be included in a filing that comes out tomorrow as well. This is similar to past quarters.

From those announcements, you’re likely to see news articles saying that we hurt Amazon’s earnings and lost a ton of money. That doesn’t tell the full story, so I wanted to share some more info on our third-quarter results with you, so you — and the customers you serve — can better understand what they mean.

First, here’s what you can glean from Amazon’s filings: We had roughly $124 million in revenue last quarter, our operating expense was approximately $193 million, and we had an operating loss of around $565 million and an overall net loss of about $566 million for the quarter.

Sounds like a lot of losses, right? Or maybe you wonder how our losses could be higher than our operating expenses? Well, what the numbers don’t fully explain is that more than 95% of our estimated losses in the quarter involved non-cash items, in particular an estimated charge of around $496 million related to the write down of “goodwill” in acquisitions we made last year and another $45 million or so related to stock compensation and other items.

In layman’s terms, we took a charge of around $496 million because we had to revalue some of the companies we acquired last year. As you know, the market has also dropped over that same time for similar public tech companies. Those changes in valuation showed up as an “impairment” in our financial statements, but they do not affect the day-in, day-out operations of the business.

When you look at our financial position, the story is very different. For the third quarter of 2012, our global revenue nearly doubled on a year-over-year basis. More important, for the first time since 2009, we had positive operating cash flow for our company on a global basis in the month of September. In other words, we ended the last month of the quarter with more money in the bank than we had at the beginning of the month, marking an important milestone on our path to profitability and long-term success.

The September numbers from Yipit also show strong competitive trends. From August to September, we gained a whopping six points of North American market share against Groupon, as our share jumped from 21% to 24% while theirs fell from 56% in August to 53% in September. While those numbers included our world-record-setting Starbucks deal, they also showed strong growth without it.

In the big picture, all of these trends mean that LivingSocial is gaining control over our own destiny, an enviable position for any start-up and one that allows us to aggressively execute against our vision to build the leading platform for local commerce worldwide.

I know each of you is working hard and making strong moves every day to help us reach our goals. Thanks for all your efforts.

– Tim