Enom 2014 Annual Report Download - page 20

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The loss of third-party data providers, or the inability to use data in the way we currently do, could significantly diminish the value
of our algorithms, which could limit the effectiveness of our content creation process and have a material adverse effect on our
business, financial condition and results of operation.
We collect data regarding consumer search queries from a variety of sources. When a user accesses one of our owned and
operated online properties, we may have access to certain data associated with the source and specific nature of the visit. We also
license consumer search query data from third parties. We have created algorithms that utilize this data to help us determine what
content consumers are seeking, if that content is valuable to advertisers and whether we can cost-effectively produce this content.
Some of these third-party consumer search data agreements are for perpetual licenses of a discrete amount of data and do not provide
for updates of the data licensed. We may not be able to enter into agreements with these third parties to license additional data on the
same or similar terms, if at all. If we are not able to enter into agreements with these providers, we may not be able to enter into
agreements with alternative third-party consumer search data providers on acceptable terms or on a timely basis or both. Any
termination of our relationships with these consumer search data providers, or any entry into new agreements on terms and conditions
less favorable to us, could limit the effectiveness of our content creation process, which would have a material adverse effect on our
business, financial condition and results of operations. In addition, new laws or changes to existing laws in this area may prevent or
restrict our use of this data. In such event, the value of our algorithms and our ability to determine what consumers are seeking could
be significantly diminished.
We depend upon the quality of traffic to our owned and operated online properties and our customers’ online properties to provide
value to online advertisers, and any failure in our quality control could have a material adverse effect on the value of such online
properties to our third-party advertisement distribution providers and online advertisers and thereby adversely affect our revenue.
We depend upon the quality of traffic to our owned and operated online properties and our customers’ online properties to
provide value to online advertisers. Low quality traffic can include clicks associated with non-human processes, including robots,
spiders or other software; the mechanical automation of clicking; and other types of invalid clicks or click fraud. There is a risk that a
certain amount of low-quality traffic, or traffic that is deemed to be invalid by online advertisers, will be delivered to online
advertisers on our online properties or our customers’ online properties. As a result, we may be required to credit future amounts owed
to us by our advertising partners or repay them for amounts previously received if such future amounts are insufficient. Furthermore,
low-quality or invalid traffic may be detrimental to our relationships with third-party advertisement distribution providers and online
advertisers, and could adversely affect our revenue.
As a creator and a distributor of Internet content, we face potential liability and expenses for legal claims based on the nature and
content of the materials that we create or distribute, or that are accessible via our owned and operated online properties and our
customers’ online properties. If we are required to pay damages or expenses in connection with these legal claims, our business,
financial condition and results of operations may be harmed.
As a creator and distributor of original content and third-party provided content, we face potential liability in the United States
and abroad based on a variety of theories, including copyright or trademark infringement, defamation, negligence, unlawful practice of
a licensed profession and other legal theories based on the nature, creation or distribution of this information, and under various laws,
including the Lanham Act and the Copyright Act. We may also be exposed to similar liability in connection with content that we do
not create but that is posted to our owned and operated online properties and to our customers’ online properties by users and other
third parties through forums, comments, personas and other social media features. In addition, it is also possible that visitors to our
owned and operated online properties or our customers’ online properties could bring claims against us for losses incurred in reliance
upon information provided on such online properties. These claims, regardless of their merit, could divert management time and
attention away from our business and result in significant costs to investigate and defend. If we become subject to these or similar
types of claims and are not successful in our defense, we may be forced to pay substantial damages. If the content we distribute
through our owned and operated online properties or our customers’ online properties violates the intellectual property rights of others
or gives rise to other legal claims against us, we could be subject to substantial liability, which could have a negative impact on our
business, financial condition and results of operations.
Risks Relating to our Company
We have a history of operating losses and may not be able to operate profitably or sustain positive cash flow in future periods.
We were founded in 2006 and, except for the year ended December 31, 2012, when we generated net income, we have had a net
loss in every year from inception, including generating a net loss of $267.4 million for the year ended December 31, 2014. As of
December 31, 2014 we had an accumulated deficit of approximately $352.1 million and we may incur net operating losses in the
future. Moreover, our cash flows from operating activities in the future may not be sufficient to fund our desired level of investment
and expenditures in our content creation and distribution platform and online marketplaces, as well as the development and launch of
new products and services. Our ability to generate net income in the future will depend in large part on our ability to generate and