Groupon 2014 Annual Report Download - page 66

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62
comprised of third party logistics provider costs, as well as rent, depreciation, personnel costs and other costs of operating our
own fulfillment center, which began operations in the fourth quarter of 2013. For third party revenue transactions, cost of revenue
includes estimated refunds for which the merchant's share is not recoverable. Other costs incurred to generate revenue, which
include credit card processing fees, editorial costs, certain technology costs, web hosting and other processing fees, are allocated
to cost of third party revenue, direct revenue, and other revenue in proportion to gross billings during the period. As a result of
the significant growth we have experienced from direct revenue transactions relative to our total gross billings for the year ended
December 31, 2013, as compared to the prior year, an increased share of those allocable costs has been allocated to cost of direct
revenue in our consolidated statement of operations for the year ended December 31, 2013.
Cost of revenue increased by $353.2 million to $1,072.1 million for the year ended December 31, 2013, as compared to
$718.9 million for the year ended December 31, 2012, which was attributable to the growth in direct revenue from our Goods
category. The increase in cost of revenue was primarily driven by the cost of inventory and related shipping and fulfillment costs
on direct revenue deals, which were not as significant during the prior year. We currently outsource most of our inventory fulfillment
activities to third party logistics providers. However, we expect to reduce our usage of those third parties in future periods by
transitioning a portion of global inventory fulfillment work to internal resources. We launched a fulfillment center in the United
States during the fourth quarter of 2013. We believe the transition to internal fulfillment centers will ultimately reduce our
fulfillment costs. However, we may incur increased fulfillment costs in the near term as we build our internal processes and
transition the fulfillment work from those third parties.
Cost of Revenue by Segment
Cost of revenue by segment for the years ended December 31, 2013 and 2012 was as follows:
Year Ended December 31,
2013 % of total 2012 % of total
(dollars in thousands)
North America:
Third party and other ............................... $ 98,697 9.2% $ 145,212 20.2%
Direct........................................................ 709,824 66.2 365,179 50.8
Total segment cost of revenue............... 808,521 75.4 510,391 71.0
EMEA:
Third party ............................................... 70,102 6.5 73,654 10.2
Direct........................................................ 102,687 9.6 42,638 6.0
Total segment cost of revenue............... 172,789 16.1 116,292 16.2
Rest of World:
Third party ............................................... 63,263 5.9 78,873 11.0
Direct........................................................ 27,549 2.6 13,384 1.8
Total segment cost of revenue............... 90,812 8.5 92,257 12.8
Total cost of revenue................................... $ 1,072,122 100.0% $ 718,940 100.0%