Groupon 2013 Annual Report Download - page 31

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resulting in difficulties in recruiting, decreased revenue and a negative impact on the number of merchants we feature and the size
of our customer base, the loyalty of our customers and the number and variety of deals we offer each day. As a result, our business,
financial condition and results of operations could be materially and adversely affected.
Acquisitions, joint ventures and strategic investments could result in operating difficulties, dilution and other consequences.
We have in the past acquired a number of companies, including Ticket Monster, which we acquired on January 2, 2014
for total consideration of $100.0 million cash and 13,825,283 shares of Class A common stock with an acquisition date fair value
of $162.9 million, and Ideeli, which we acquired on January 13, 2014 for total cash consideration of $43.0 million. We expect to
continue to evaluate, consider and potentially consummate a wide array of potential strategic transactions, including acquisitions
and dispositions of businesses, joint ventures, technologies, services, products and other assets and minority investments. However,
we may be unable to successfully complete potential acquisitions. Acquisitions involve significant risks and uncertainties, including
uncertainties as to the future financial performance of the acquired business, difficulties integrating acquired personnel into our
business, the potential loss of key employees, customers or suppliers, difficulties in integrating different computer and accounting
systems and exposure to unknown or unforeseen liabilities of acquired companies. We may not realize the anticipated benefits
of any or all of our acquisitions and investments, or we may not realize them in the time frame expected. In addition, the integration
of an acquisition could divert management's time and the company's resources. If we pay for an acquisition or a minority investment
in cash, it would reduce our cash available for operations or cause us to incur debt, and if we pay with our stock it could be dilutive
to our stockholders. Additionally, we do not have the ability to exert control over our joint ventures and minority investments,
and therefore we are dependent on others in order to realize their potential benefits.
Our business may be subject to seasonal sales fluctuations which could result in volatility or have an adverse effect on the
market price of our Class A common stock.
Our business has been and may continue to be subject to sales seasonality. This seasonality may cause our working capital
cash flow requirements to vary from quarter to quarter depending on the variability in the volume and timing of sales. For example,
we experienced an $88.5 million increase in operating cash flow during the year ended December 31, 2013 as the result of an
increase in accrued merchant and supplier payables, primarily due to the timing of payments to suppliers of merchandise and the
seasonally high levels of Goods transactions in the fourth quarter of 2013. These factors, among other things, make forecasting
more difficult and may adversely affect our ability to manage working capital and to predict financial results accurately, which
could adversely affect the market price of our Class A common stock.
Failure to deal effectively with fraudulent transactions and customer disputes would increase our loss rate and harm our
business.
Groupons are issued in the form of redeemable coupons with unique identifiers. It is possible that consumers or other
third parties will seek to create counterfeit Groupons in order to fraudulently purchase discounted goods and services from our
merchants. While we use advanced anti-fraud technologies, it is possible that criminals will attempt to circumvent our anti-fraud
systems using increasingly sophisticated methods. In addition, our service could be subject to employee fraud or other internal
security breaches, and we may be required to reimburse customers and/or merchants for any funds stolen or revenue lost as a result
of such breaches. Our merchants could also request reimbursement, or stop using Groupon, if they are affected by buyer fraud or
other types of fraud.
We may incur significant losses from fraud and counterfeit Groupons. We may incur losses from claims that the customer
did not authorize the purchase, from merchant fraud, from erroneous transmissions, and from customers who have closed bank
accounts or have insufficient funds in them to satisfy payments. In addition to the direct costs of such losses, if they are related to
credit card transactions and become excessive, they could potentially result in our losing the right to accept credit cards for payment.
If we were unable to accept credit cards for payment, we would suffer substantial reductions in revenue, which would cause our
business to suffer. While we have taken measures to detect and reduce the risk of fraud, these measures need to be continually
improved and may not be effective against new and continually evolving forms of fraud or in connection with new product offerings.
If these measures do not succeed, our business will suffer.
We are subject to payments-related risks.
We accept payments using a variety of methods, including credit card, debit card and gift certificates. As we offer new
payment options to customers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment
methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating
costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit
cards and debit cards and it could disrupt our business if these companies become unwilling or unable to provide these services