Groupon 2012 Annual Report Download - page 38

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ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read
together with our consolidated financial statements and related notes included under Item 8 of this Annual
Report on Form 10-K. This discussion contains forward-looking statements about our business and operations.
Our actual results may differ materially from those we currently anticipate as a result of many factors, including
those we describe under “Risk Factors” and elsewhere in this Annual Report.
Overview
Our mission is to be the operating system for local commerce. As part of that vision, we act as a local
commerce marketplace that connects merchants to consumers by offering goods and services at a discount.
Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods,
including online advertising, the yellow pages, direct mail, newspaper, radio, television, and promotions. By
bringing the brick and mortar world of local commerce onto the Internet, Groupon is helping local merchant
partners to attract customers and sell goods and services. In our Goods category, through which we offer deals on
merchandise, we often act as the merchant of record, particularly on deals in North America. We provide
consumers with savings and help them discover what to do, eat, see, buy and where to travel.
Each day, we email our subscribers discounted offers on goods, services and travel that are targeted by
location, purchase history and personal preferences. Current and potential customers also access our deals
directly through our website and mobile applications. Our revenue from deals where we act as the third party
marketing agent is the purchase price paid by the customer for a Groupon voucher (“Groupon”) less an agreed
upon portion of the purchase price paid to the featured merchant partners, excluding any applicable taxes and net
of estimated refunds for which the merchant’s share is recoverable. Our direct revenue from deals where we act
as the merchant of record is the purchase price paid by the customer for the Groupon excluding any applicable
taxes and net of estimated refunds. During the year ended December 31, 2012, we generated revenue of $2,334.5
million, compared to $1,610.4 million during the year ended December 31, 2011.
We have organized our operations into two principal segments: North America, which represents the United States
and Canada, and International, which represents the rest of our global operations. For the year ended December 31, 2012,
we derived 50.1% of our revenue from our International segment, compared to 49.9% from our North America segment.
We have an accumulated deficit of $753.5 million as of December 31, 2012. Since our inception, we have
driven our growth through substantial investments in infrastructure and marketing to increase customer
acquisition. In particular, our significant net losses in previous years were driven primarily by the rapid
expansion of our International segment, which involved investing heavily in upfront marketing, sales and
infrastructure related to the build out of our operations in early stage countries.
How We Measure Our Business
We measure our business with several financial and operating metrics. We use these metrics to assess the
progress of our business, make decisions on where to allocate capital, time and technology investments and
assess the long-term performance of our marketplace. Certain of these metrics are reported in accordance with
generally accepted accounting principles (“GAAP”) and certain of these metrics are considered non-GAAP
financial measures. For further information and a reconciliation to the most applicable financial measure under
U.S. GAAP, refer to our discussion under Non-GAAP Financial Measures in the “Results of Operations” section.
We have historically presented “revenue per average active customer” as one of our operating metrics,
which we evaluated as an indicator of whether our average customer is purchasing deals with a higher or lower
percentage of gross billings retained by Groupon. However, due to the increase in direct revenue as a percentage
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