Groupon 2011 Annual Report Download - page 22

The success of our business depends in part on our ability to retain and increase the number of merchant partners who use our service. Currently, when a
merchant partner works with us to offer a deal for its products or services, it receives an agreed-
upon percentage of the total proceeds from each Groupon sold,
and we retain the rest. If merchant partners decide that utilizing our services no longer provides an effective means of attracting new customers or selling their
goods and services, they may demand a higher percentage of the total proceeds from each Groupon sold. This could adversely affect our revenue.
In addition, we expect to face increased competition from other Internet and technology-
based businesses. We also have seen that some competitors will
accept lower margins, or negative margins, to attract attention and acquire new customers. If competitors engage in group buying initiatives in which merchants
receive a higher percentage of the revenue than we currently offer, we may be forced to take a lower percentage of the gross billings, which would reduce our
revenue.
Our operating cash flow and results of operations could be adversely impacted if we change our merchant payment terms or our revenues do not continue to
grow.
Our merchant payment terms and revenue growth have provided us with operating cash flow to fund our working capital needs. Our merchant partner
arrangements are generally structured such that we collect cash up front when our customers purchase Groupons and make payments to our merchant partners at
a subsequent date. In North America, we typically pay our merchant partners in installments within sixty days after the Groupon is sold. In our International
segment, merchant partners are not paid until the customer redeems the Groupon. Our accrued merchant payable, which primarily consists of payment
obligations to our merchant partners, has grown, both nominally and as a percentage of gross billings, as our gross billings have increased, particularly the gross
billings from our International segment. Our accrued merchant payable balance increased from $162.4 million as of December 31, 2010 to $520.7 million as of
December 31, 2011. We use the operating cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs. If we offer
our merchant partners more favorable or accelerated payment terms or our revenue does not continue to grow in the future, our operating cash flow and results of
operations could be adversely impacted and we may have to seek alternative financing to fund our working capital needs.
Our business relies heavily on email and other messaging services, and any restrictions on the sending of emails or messages or a decrease in subscriber
willingness to receive messages could adversely affect our revenue and business.
Our business is highly dependent upon email and other messaging services. Deals offered through emails and other messages sent by us, or on our behalf by
our affiliates, generate a substantial portion of our revenue. Because of the importance of email and other messaging services to our businesses, if we are unable
to successfully deliver emails or messages to our subscribers or potential subscribers, or if subscribers decline to open our emails or messages, our revenue and
profitability would be adversely affected. Actions by third parties to block, impose restrictions on, or charge for the delivery of, emails or other messages could
also materially and adversely impact our business. From time to time, Internet service providers block bulk email transmissions or otherwise experience technical
difficulties that result in our inability to successfully deliver emails or other messages to third parties. In addition, our use of email and other messaging services
to send communications about our website or other matters may result in legal claims against us, which if successful might limit or prohibit our ability to send
emails or other messages. Any disruption or restriction on the distribution of emails or other messages or any increase in the associated costs would materially
and adversely affect our revenue and profitability.
We have a rapidly evolving business model and our new product and service offerings could fail to attract or retain customers or generate revenue.
We have a rapidly evolving business model and are regularly exploring entry into new market segments and the introduction of new products and features
with respect to which we may have limited experience. In addition, our customers may not respond favorably to our new products and services. These products
and services may present new and significant technology challenges, and we may be subject to claims if customers of these offerings experience service
disruptions or failures or other quality issues. If products or services we introduce, such as changes to our websites and applications, the introduction of social
networking and location-
based marketing elements to our websites, or entirely new lines of business that we may pursue, fail to engage customers or merchant
partners, we may fail to acquire or retain customers or generate sufficient revenue or other value to justify our investment, and our business may be materially
and adversely affected. Our ability to retain or increase our customer base and revenue will depend heavily on our ability to innovate and to create successful
new products and services. In addition, the relative profitability, if any, of our new activities may be lower than that of our historical activities, and we may not
generate sufficient revenue from new activities to recoup our investments in them. If any of this were to occur, it could damage our reputation, limit our growth
and negatively affect our operating results.
We purchase and sell some products from indirect suppliers, which increases our risk of litigation and other losses.
We have recently begun selling Groupons to buy merchandise both directly from brand owners and indirectly from retailers and third party distributors,
and we also sometimes take title to the goods before we offer them for sale to our
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