Groupon 2013 Annual Report Download - page 27

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increase our revenue and expand our product offerings, our refund rates may exceed our historical levels. For example, as a result
of a shift in our deal mix and higher price point offers that began in the fourth quarter of 2011, our refund rates became higher
than historical levels. A downturn in general economic conditions may also increase our refund rates. An increase in our refund
rates could significantly reduce our liquidity and profitability.
Because we do not have control over our merchants and the quality of products or services they deliver, we rely on a
statistical model that incorporates the following data inputs and factors to estimate future refunds: historical refund experience
developed from millions of deals featured on our website, the relative risk of refunds based on expiration date, deal value, deal
category and other qualitative factors that could impact the level of future refunds, such as introductions of new deals,
discontinuations of legacy deals and expected changes, if any, in our practices in response to refund experience or economic trends
that might impact customer demand. Our actual level of refund claims could prove to be greater than the level of refund claims
we estimate. If our refund reserves are not adequate to cover future refund claims, this inadequacy could have a material adverse
effect on our liquidity and profitability.
Our standard agreements with our merchants generally limit the time period during which we may seek reimbursement
for customer refunds or claims. Our customers may make claims for refunds with respect to which we are unable to seek
reimbursement from our merchants. Our inability to seek reimbursement from our merchants for refund claims could have an
adverse effect on our liquidity and profitability.
The loss of one or more key members of our management team, or our failure to attract, integrate and retain other highly
qualified personnel in the future could harm our business.
In order to be successful, we must attract, retain and motivate executives and other key employees, including those in
managerial, technical and sales positions. Hiring and retaining qualified executives, engineers and qualified sales representatives
are critical to our success, and competition for experienced and well qualified employees can be intense. In order to attract and
retain executives and other key employees in a competitive marketplace, we must provide a competitive compensation package,
including cash and share-based compensation. Our primary form of share-based incentive award is restricted stock units. If the
anticipated value of such share-based incentive awards does not materialize, if our share-based compensation otherwise ceases to
be viewed as a valuable benefit, or if our total compensation package is not viewed as being competitive, our ability to attract,
retain, and motivate executives and key employees could be weakened. The failure to successfully hire executives and key
employees or the loss of any executives and key employees could have a significant impact on our operations.
An increase in the costs associated with maintaining our international operations could adversely affect our results of operations.
Certain factors may cause our international costs of doing business to exceed our comparable costs in North America.
For example, in some countries, expansion of our business may require a close commercial relationship with one or more local
banks, a shared ownership interest with a local entity or registration as a bank under local law. Such requirements may reduce our
revenue, increase our costs or limit the scope of our activities in particular countries.
Further, because our international revenue is denominated in foreign currencies, we could become subject to increased
difficulties in repatriating money without adverse tax consequences and increased risks relating to foreign currency exchange rate
fluctuations. Further, we could be subject to the application of U.S. tax rules to acquired international operations and local taxation
of our fees or of transactions on our websites.
We conduct portions of certain functions, including product development, customer support and other operations, in
regions outside of North America. Any factors which reduce the anticipated benefits, including cost efficiencies and productivity
improvements, associated with providing these functions outside of North America, including increased regulatory costs associated
with our international operations, could adversely affect our business.
We may be subject to additional unexpected regulation which could increase our costs or otherwise harm our business.
The application of certain laws and regulations to Groupons, as a new product category, is uncertain. These include laws
and regulations such as the CARD Act, and, in certain instances, potentially unclaimed and abandoned property laws. In addition,
from time to time, we may be notified of additional laws and regulations which governmental organizations or others may claim
should be applicable to our business. If we are required to alter our business practices as a result of any laws and regulations, our
revenue could decrease, our costs could increase and our business could otherwise be harmed. In addition, the costs and expenses
associated with defending any actions related to such additional laws and regulations and any payments of related penalties,
judgments or settlements could adversely impact our profitability. As we expand into new lines of business and new geographies,
we will become subject to additional laws and regulations.