UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014 |
OR |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________ |
Commission file number: 1-35335
Groupon, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 27-0903295 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
600 West Chicago Avenue, Suite 400 Chicago, Illinois | 60654 | |
(Address of principal executive offices) | (Zip Code) | |
312-334-1579
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Class A Common Stock, par value $0.0001 | Nasdaq Global Select Market | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x | No |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
As of June 30, 2014, the aggregate market value of shares held by non-affiliates of the registrant was $3,340,614,720 based on the number of shares of Class A common stock held by non-affiliates as of June 30, 2014 and based on the last reported sale price of the registrant's Class A common stock on June 30, 2014.
As of February 9, 2015, there were 672,963,103 shares of the registrant's Class A Common Stock outstanding and 2,399,976 shares of the registrant's Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating to the Annual Meeting of Stockholders to be held in 2015, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.
1
TABLE OF CONTENTS
PART I | Page |
Forward-Looking Statements | |
Item 1. Business | |
Item 1A. Risk Factors | |
Item 1B. Unresolved Staff Comments | |
Item 2. Properties | |
Item 3. Legal Proceedings | |
Item 4. Mine Safety Disclosures | |
PART II | |
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
Item 6. Selected Financial Data | |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 7A. Quantitative and Qualitative Disclosure about Market Risk | |
Item 8. Financial Statements and Supplementary Data | |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |
Item 9A. Controls and Procedures | |
Item 9B. Other Information | |
PART III | |
Item 10. Directors, Executive Officers and Corporate Governance | |
Item 11. Executive Compensation | |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
Item 13. Certain Relationships and related Transactions, and Director Independence | |
Item 14. Principal Accountant Fees and Services | |
Part IV | |
Item 15. Exhibits and Financial Statement Schedule | |
______________________________________________________
2
PART I
FORWARD‑LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations. The words "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "continue" and other similar expressions are intended to identify forward-looking statements. We have based these forward looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in "Item 1A: Risk Factors" of this Annual Report on Form 10-K, as well as in our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
As used herein, "Groupon," "we," "our," and similar terms include Groupon, Inc. and its subsidiaries, unless the context indicates otherwise.
ITEM 1: BUSINESS
Overview
Groupon is a global leader in local commerce, making it easy for people around the world to search and discover great businesses and merchandise. Our vision is to connect local commerce, increasing consumer buying power while driving more business to merchants through price and discovery. We want Groupon to be the destination that our customers check first when they are out and about; the place they start when they are looking to buy just about anything, anywhere, anytime. By leveraging our global relationships and scale, we offer consumers deals on things to eat, see, do and buy in 47 countries.
We operate online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services at a discount. Our operations are organized into three principal segments: North America, which represents the United States and Canada, EMEA, which is comprised of Europe, the Middle East and Africa, and the remainder of our international operations ("Rest of World"). We offer deals on goods and services in three primary categories: Local Deals ("Local"), Groupon Goods ("Goods") and Groupon Getaways ("Travel"). We act as a third party marketing agent by selling vouchers ("Groupons") that can be redeemed for products or services with a merchant. We also sell merchandise directly to customers in transactions for which we are the merchant of record. Customers access our deal offerings directly through our websites, mobile platforms and emails and may also access our offerings indirectly using search engines.
Our results from 2014 include the following:
• | Gross billings increased to $7.6 billion in 2014, as compared to $5.8 billion in 2013. In 2014, 43.6%, 27.0% and 29.4% of our gross billings were generated in North America, EMEA and Rest of World, respectively, as compared to 49.5%, 34.5% and 16.0% in 2013. Gross billings represent the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Gross billings differs from our revenue, which is presented net of the merchant's share of the transaction price for transactions in which we act as a third party marketing agent. Gross billings and revenue are the same for transactions in which we sell merchandise directly to customers as the merchant of record. |
• | Revenue increased to $3.2 billion in 2014, as compared to $2.6 billion in 2013. In 2014, 57.2%, 30.1% and 12.7% of our revenue was generated in North America, EMEA and Rest of World, respectively, as compared to 59.1%, 28.9% and 12.0% in 2013. |
3
• | Gross profit increased to $1,549.2 million in 2014, as compared to $1,501.5 million in 2013. |
• | Loss from operations was $14.8 million in 2014, compared to $75.8 million of income from operations in 2013. |
• | The number of active customers, which is defined as customers who have made a purchase on our platform within the last twelve months, increased to 53.9 million as of December 31, 2014 from 43.7 million as of December 31, 2013. |
• | As of December 31, 2014, we had approximately 370,000 active deals available to customers through our marketplaces. |
We are a Delaware corporation, incorporated on January 15, 2008 under the name "ThePoint.com, Inc." We started Groupon in October 2008 and officially changed our name to Groupon, Inc. by filing an amended certificate of incorporation on June 16, 2009. Our principal executive offices are located at 600 West Chicago Avenue, Suite 400, Chicago, Illinois 60654, and our telephone number at this address is (312) 334-1579. Our investor relations department can be reached through our investor relations hotline, which is (312) 999-3098. Our website is www.groupon.com. Information contained on our website is not a part of this Annual Report on Form 10-K. We completed our initial public offering in November 2011 and our Class A common stock is listed on the Nasdaq Global Select Market under the symbol "GRPN."
GROUPON, the GROUPON logo and other GROUPON-formative marks are trademarks of Groupon, Inc. in the United States or other countries. This Annual Report on Form 10-K also includes other trademarks of Groupon and trademarks of other persons.
Our Strategy
Our primary objective is to become an essential part of everyday local commerce for consumers and merchants. Key elements of our strategy include the following:
Become the starting point for mobile commerce. We believe that Groupon is well positioned to be a leader in the world of mobile commerce. During 2014, we continued to invest in our mobile technology in order to attempt to capitalize on the growing trend of consumers making purchases through smartphones and tablets. In the fourth quarter of 2014, over 50% of our global transactions were completed on mobile devices. Additionally, almost 110 million people have downloaded our mobile applications worldwide as of January 31, 2015. We intend to continue making investments in mobile technology and marketing to improve the customer experience, help grow our mobile transaction volume and help increase customer awareness of their ability to access our offerings on mobile devices.
Redefine local commerce. Groupon seeks to bring the power of the Internet to local commerce, serving as an important source of customer acquisition for local merchants. To accomplish this, we are focused on growing our base of active customers by offering a variety of quality deals and focusing on customer satisfaction. We believe customer dissatisfaction primarily occurs when we offer deals that our customers do not consider relevant and when the promotional value of a voucher expires before redemption. Our efforts to improve relevance and reduce expirations include building our online commerce marketplaces where merchants generally have a continuous presence for an extended period of time. In our online commerce marketplaces, customers can provide feedback on which merchants they would like to offer deals who are not currently offering deals, which can be used to improve the relevance of future deals. With extended availability of deal offerings through our marketplaces customers can purchase a voucher when they have plans to redeem it, rather than purchasing the voucher earlier in response to a limited-time offer. We have also launched a tablet-based platform for merchants to streamline the voucher redemption process.
Grow our local commerce marketplaces. We continue to transition our business from primarily a "push" model that generates demand by emailing offers to customers to more of a demand fulfillment, or "pull," model that enables customers to search for goods and services through online local marketplaces that they can access through our websites and mobile applications and by using search engines. By continuing to develop and expand our marketplaces and improve the search functionality of our websites and mobile applications, we are seeking to provide customers in each of our markets with a single place where they can go to search for and discover great deals on local merchant offerings, merchandise and travel. We remain focused on growing the supply of active deals available through our marketplaces to achieve this objective. We have increased our average active deal counts from approximately 1,000 deals available worldwide at the time of our initial public offering in November 2011 to approximately 370,000 deals available worldwide as of the end of the fourth quarter of 2014.
We have implemented a self-serve process whereby merchants have the ability to construct deals that can be offered on-demand through our websites and we believe that this process provides merchants with an easier way to improve their web presence and reach new customers. We have also begun adding additional content about local merchants to our websites,
4
including merchants who have not offered deals through our marketplaces. This new content, which we refer to as "Pages," is intended to give customers the ability to discover more local businesses and deal offerings through our websites.
Enhance the email experience. While an increasing proportion of transactions on our platform are occurring on mobile devices and our websites, email still generates significant transaction volume and we expect that it will continue to do so in the future. We continue to refine our use of targeting technology that enables us to distribute deal offerings to current and potential customers based on their location and personal preferences. In addition to email, we use this targeting technology for push notifications on mobile devices. Our targeting technology is also used to inform our search engine marketing and other transactional marketing spending that may attract potential customers who have not yet subscribed to our emails, downloaded our mobile applications or purchased a Groupon.
Continue to build out our categories. Although Groupon began by offering only daily deals from local merchants, our platform has evolved over time into three primary categories: Local, Goods and Travel. Within those primary deal categories are a variety of subcategories, such as food and drink, events and activities, health and beauty, household items, jewelry, electronics and apparel. We intend to continue to build out our categories and subcategories by actively pursuing opportunities that would enable us to expand our deal offerings. See the "Categories" section below for additional information.
Globalize our platforms and processes. Because our international expansion was accomplished primarily through acquisitions, we inherited different technology platforms and business processes. We have undertaken a company-wide program that has streamlined many of our technology platforms and processes and we have rolled out a number of internal tools to increase our efficiency, including, for example, internal tools used by our salespeople to support their efforts in obtaining quality deal offerings for our marketplaces. In addition, we are increasingly automating our support functions in order to improve the overall efficiency of our business operations.
Our Business
Groupon operates online local commerce marketplaces throughout the world that connect 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, paid telephone directories, direct mail, newspaper, radio, television and other promotions. By bringing the brick and mortar world of local commerce onto the Internet, Groupon is helping local merchants to attract customers and sell goods and services. We provide consumers with savings and help them discover what to do, eat, see, buy and where to travel.
We earn revenue from deals where we act as a third party marketing agent by selling vouchers that can be redeemed for goods or services with a merchant. Our third party revenue from those transactions is the purchase price paid by the customer for the voucher less an agreed upon portion of the purchase price paid to the featured merchants, excluding applicable taxes and net of estimated refunds for which the merchant's share is recoverable. We also earn revenue by selling merchandise directly to customers in transactions for which we are the merchant of record. Our direct revenue from those transactions is the purchase price paid by the customer, excluding applicable taxes and net of estimated refunds.
Our business model has evolved from primarily an email-based "push" model with a limited number of deals offered at any given time to more extensive online "pull" marketplaces, particularly in North America, where customers can come to Groupon and search for deals on goods and services. Our marketplaces are accessible through our websites and mobile applications, including through localized groupon.com sites in many countries. We also recently launched Pages in North America, a platform that we use to publish ratings and helpful tips from customers to highlight the unique aspects of local merchants, including merchants that have not offered deals through our marketplaces. In addition, Pages provide merchants with an additional online presence to connect with potential customers and drive more sales in the form of exclusive offers, everyday specials, coupons and other promotions.
On January 2, 2014, we acquired LivingSocial Korea, Inc. ("LS Korea"), a Korean corporation and holding company of Ticket Monster Inc. ("Ticket Monster"), for total consideration of $259.4 million, consisting of $96.5 million cash and 13,825,283 shares of Class A common stock with an acquisition date fair value of $162.9 million. Ticket Monster, which has approximately 1,000 employees, is an e-commerce company based in the Republic of Korea that connects merchants to consumers by offering goods and services at a discount. The operations of Ticket Monster are reported within our Rest of World segment in 2014.
We have hired advisers to help us explore a range of financing and strategic alternatives for Ticket Monster and certain other Asian markets. As part of that process, multiple parties have expressed preliminary interest in Ticket Monster. However, we cannot provide any assurance as to the pricing, timetable or structure of any transaction, or the likelihood of any transaction being completed.
5
On January 13, 2014, we acquired Ideeli, Inc. (d/b/a "Ideel"), a fashion flash site based in the United States for $42.7 million. Ideel is focused on women's fashion apparel, accessories and home décor, and the operations of Ideel are reported within our North America segment in 2014.
Categories
Local. Our Local category includes deals with local merchants, deals with national merchants and local events. Local also includes other revenue sources such as advertising revenue, payment processing revenue, point of sale revenue and commission revenue as these revenue sources are primarily generated through the our relationships with local and national merchants. We offer deals for local merchants across multiple subcategories, including food and drink, events and activities, beauty and spa, health and fitness, home and garden and automotive. In the United States, customers can book reservations at selected restaurants through our website and mobile applications. National merchants also have used our marketplaces as an alternative to traditional marketing and brand advertising. Although our business today is weighted toward deals from local merchants, we continue to feature national deals to build our brand awareness, acquire new customers and generate additional revenue. In 2014, we featured deals from a number of well-known national merchants across our North American markets, including Starbucks, Rosetta Stone, Whole Foods, and Sam's Club. In addition to national deals, Coupons, our coupon offering that was launched in 2013, and Snap, our mobile application launched in 2014 that offers customers cash-back for buying featured grocery and consumer-packaged goods, gives customers the ability to access coupons from thousands of retailers. Additionally, GrouponLive is a partnership with LiveNation through which Groupon offers deals on concerts, sports, theater and other live entertainment events.
Goods. Our Goods category offers customers the ability to find deals on merchandise across multiple product lines, including electronics, sporting goods, jewelry, toys, household items and apparel. As the Goods category continues to grow, we expect that we will continue to add new brands to our platform in order to expand our offerings.
In our Goods category, we earn direct revenue from transactions in which we sell products directly to customers and serve as the merchant of record, as well as third party revenue from transactions in which we act as a third party marketing agent and sell vouchers that can be redeemed for products with a merchant. Our Goods transactions in North America are primarily direct revenue deals and, beginning in September 2013, a significant portion of our Goods transactions in EMEA have been direct revenue deals as well. Goods transactions in EMEA prior to September 2013 and in our Rest of World segment have primarily been third party revenue deals.
In order to attempt to reduce costs and improve the customer experience, we continue to be focused on streamlining our order fulfillment process for Goods. Although we currently outsource a majority of our inventory fulfillment activities in the United States to third party logistics providers, we expect to reduce our usage of those third parties in future periods by transitioning additional inventory fulfillment work in the United States to internal resources. We launched our own fulfillment center in the fourth quarter of 2013 and have increased our use of arrangements in which the suppliers of our product offerings ship merchandise directly to our customers to further reduce the involvement of third party logistics providers. We are also refining our inventory management practices to better allocate inventories among warehouses in different geographic regions throughout the United States to reduce shipping distances to customers and increase units per transaction.
Getaways. Through our Getaways category, we feature travel offers at both discounted and market rates, including hotels, airfare and package deals covering both domestic and international travel. For many of our travel deals, the customer must contact the merchant directly to make a travel reservation after purchasing the travel voucher from us. However, for some of our hotel deals, we take room reservations directly through our websites.
Distribution
We distribute our deal offerings to customers primarily through three channels: our mobile platform, our websites and email. Customers can also access our deal offerings indirectly through search engines. Our mobile platform consists of apps and mobile websites, which we currently offer on iPhones, iPads, Android, Blackberry and Windows devices.
Mobile Applications. Consumers are increasingly accessing our deals through our mobile applications, as well as through mobile browsers. These applications enable consumers to browse, purchase, manage and redeem deals on their mobile devices. In addition, in our North American markets, consumers have a "Nearby" tab, which shows the deals that are closest to the consumer's location. In the fourth quarter of 2014, over 50% of our global transactions were completed on mobile devices. Additionally, almost 110 million people have downloaded our mobile applications worldwide as of January 31, 2015.
6
Websites. In 2014, we launched website enhancements in many of our international markets in an effort to improve the overall customer experience. The enhancements were based on the 2013 redesign of our North American website that included improved search capabilities and personalized offerings each day tailored to the user's preferences.
Email. In North America and most of our international markets, we use targeting technology to distribute deals to current and potential customers based on their locations and personal preferences. A subscriber who clicks on a deal within an email is directed to our website or mobile application to learn more about the deal and make a purchase.
Search Engines and Other. Customers can access our deal offerings indirectly through third party search engines. We use search engine optimization ("SEO") and marketing ("SEM") to increase the visibility of our offerings in web search results. We have established an affiliate program that utilizes third parties to promote our deals online. Affiliates earn commissions when customers access our deals through links on their websites and make purchases. We expect to continue to leverage affiliate relationships to extend the distribution of our deals to a broad base of potential customers. We also publish our deals through various social networks, and our notifications are adapted to the particular format of each of these social networking platforms. Our website and mobile application interfaces enable our consumers to push notifications of our deals to their personal social networks.
Marketing
Marketing is the primary method by which we acquire customers and promote awareness of our marketplaces and deal offerings and, as such, is an important part of our growth strategy. Our marketing spend increased, both in absolute dollars and as a percentage of revenue, during the year ended December 31, 2014, as compared to the prior year, and remains a key element of our business operations. Online marketing consists of search engine marketing, television, billboard and radio advertisements, public relations and sponsored events to increase our visibility and build our brand. Our marketing activities also include elements that are not presented as "Marketing" on our consolidated statements of operations, such as order discounts and free shipping on merchandise sales.
Sales and Operations
Our sales force includes approximately 5,000 merchant sales representatives and sales support staff, who build merchant relationships and provide local expertise. Our North American merchant sales representatives and support staff are primarily based in our offices in Chicago, and our international merchant sales representatives and support staff are based in our international offices, although many of our international merchant sales representatives conduct business using a door-to-door sales strategy. Our global sales and sales support headcount by segment as of December 31, 2014 was as follows:
North America | 1,369 |
EMEA | 1,896 |
Rest of World | 1,719 |
Total | 4,984 |
The number of sales representatives is higher as a percentage of revenue in our EMEA and Rest of World segments due to the need to have separate sales organizations for most of the different countries in which we operate. Due to local economic conditions, however, the average cost of each sales representative is lower in most countries in our EMEA and Rest of World segments as compared to the costs in our North America segment.
Other key operational functions include city planners, editorial, merchant services, customer service, technology and logistics. City planners work with sales teams to optimize deal structure and pricing and manage the category, discount and geographic mix, as well as the cadence of deals in their respective markets. Our editorial department is responsible for creating the written and visual content on the deals we offer. Merchant services representatives work with merchants to plan for increased customer traffic before a deal is offered and serve as an ongoing point of contact for the merchant over the term of a deal. Our customer service department is responsible for answering questions received via phone, email and on public discussion boards regarding purchases, shipping status, returns and other areas of customer inquiry. Our technology team is focused on the design and development of new features and products, maintenance of our websites and development and maintenance of our internal operations systems. Logistics personnel are responsible for managing the flow of merchandise inventory from suppliers to our customers.
7
Our websites are hosted at a U.S. data center in Santa Clara, California and international data centers in Asia and Europe. Our data centers host our public-facing websites and applications, as well as our back-end business intelligence systems. We employ security practices to protect and maintain the systems located at our data centers. We have invested in intrusion and anomaly detection tools to try to recognize intrusions to our websites. We engage independent third-party Internet security firms to regularly test the security of our websites and identify vulnerabilities. In financial transactions between our websites and our customers, we use data encryption protocols to secure information while in transit.
Competition
Our business is rapidly evolving and we face competition from a variety of current and potential competitors. Some of our competitors offer deals as an add-on to their core business, and others have adopted a business model similar to ours. As we expand our business into additional categories and subcategories, we will compete with online and offline merchants offering similar products and services. We also compete with businesses that focus on our payment processing and point-of-sale merchant offerings. In addition, we compete with traditional offline coupon and discount services, as well as newspapers, magazines and other traditional media companies that provide coupons and discounts on products and services. We believe the principal competitive factors in our market include the following:
• | size of active customer base and breadth merchant relationships; |
• | mobile penetration; |
• | understanding of local business trends; |
• | ability to structure deals to generate positive return on investment for merchants; and |
• | strength and recognition of brand. |
Although we believe that we compete favorably on the factors described above and benefit from scale, we anticipate that larger, more established companies may directly compete with us over time. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to benefit from their existing customer base with lower acquisition costs or to respond more quickly than we can to new or emerging technologies and changes in customer requirements. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger subscriber base or to monetize that subscriber base more effectively than we do. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services.
Seasonality
We believe that some of our offerings experience seasonal buying patterns mirroring that of the larger consumer and e-commerce markets, where demand declines during customary summer vacation periods and increases during the fourth quarter holiday season. We believe that this seasonality pattern has affected, and we expect will continue to affect, our business and quarterly sequential revenue growth rates. We recognized 29.0%, 29.9% and 27.3% of our annual revenue during the fourth quarter of 2014, 2013 and 2012, respectively.
Regulation
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet. Additionally, these laws and regulations may be interpreted differently across domestic and foreign jurisdictions. As a company in a new and rapidly innovating industry, we are exposed to the risk that many of these laws may evolve or be interpreted by regulators or in the courts in ways that could materially affect our business. These laws and regulations may involve taxation, unclaimed property, intellectual property, product liability, travel, distribution, electronic contracts and other communications, competition, consumer protection, the provision of various online payment and point of sale services, employee, merchant and customer privacy and data security or other areas.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD Act"), as well as the laws of most states, contain provisions governing gift cards, gift certificates, stored value or pre-paid cards or coupons ("gift cards"). Groupon vouchers may be included within the definition of "gift cards" under many laws. In addition, certain foreign jurisdictions have laws that govern disclosure and certain product terms and conditions, including restrictions on expiration dates and fees that may
8
apply to Groupon vouchers as well as warranty requirements. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign governments that could affect us, and our global operations may be constrained by regulatory regimes and laws in Europe and other jurisdictions outside the United States that may be more restrictive and adversely impact our business.
Various U.S. laws and regulations, such as the Bank Secrecy Act, the Dodd-Frank Act, the USA PATRIOT Act and the CARD Act impose certain anti-money laundering requirements on companies that are financial institutions or that provide financial products and services. These laws and regulations broadly define financial institutions to include money services businesses such as money transmitters, check cashers and sellers or issuers of stored value. Requirements imposed on financial institutions under these laws include customer identification and verification programs, record retention policies and procedures and transaction reporting. We do not believe that we are a financial institution subject to these laws and regulations.
Intellectual Property
We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties.
In addition to these contractual arrangements, we also rely on a combination of trade secrets, copyrights, trademarks, service marks, trade dress, domain names and patents to protect our intellectual property. Groupon and its related entities own a number of trademarks and servicemarks registered or pending in the United States and internationally. In addition, we own a number of issued U.S. patents, have additional pending patent applications and own copyright registrations.
Circumstances outside our control could pose a threat to our intellectual property rights and the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business and harm our operating results.
Companies in the Internet, social media technology and other industries may own large numbers of patents, copyrights and trademarks or other intellectual property rights and may request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. We are currently subject to, and expect to face in the future, lawsuits and allegations that we have infringed the intellectual property rights of third parties, including our competitors and non-practicing entities. As we face increasing competition and as our business grows, we will likely face more claims of infringement, and may experience an adverse result which could impact our business and/or our operating results.
Employees
As of December 31, 2014, there were 3,525 employees in our North America segment, consisting of 1,369 sales representatives and 2,156 corporate, operational and customer service representatives, 3,591 employees in our EMEA segment, consisting of 1,896 sales representatives and 1,695 corporate, operational and customer service representatives, and 4,727 employees in our Rest of World segment, consisting of 1,719 sales representatives and 3,008 corporate, operational and customer service representatives.
Executive Officers
The following table sets forth information about our executive officers as of December 31, 2014:
9
Name | Age | Position | |||||||||||
Eric Lefkofsky | 45 | Co-Founder, Chief Executive Officer and Director | |||||||||||
Jason Child | 46 | Chief Financial Officer | |||||||||||
Dane Drobny | 47 | General Counsel and Corporate Secretary | |||||||||||
Sri Viswanath | 39 | Chief Technology Officer | |||||||||||
Brian Stevens | 40 | Chief Accounting Officer | |||||||||||
Eric Lefkofsky is a co-founder of the Company, has served as the Company's Executive Chairman since its inception until August 5, 2013, and served in the Office of the Chief Executive from February 28, 2013 until his appointment as Chief Executive Officer on August 5, 2013. Mr. Lefkofsky is a co-founder of Echo Global Logistics, Inc. (NASDAQ: ECHO) and served on its board of directors from February 2005 to December 2012. Mr. Lefkofsky is a co-founder of InnerWorkings, Inc. (NASDAQ: INWK) and served on its board of directors from August 2008 to October 2012. In 2008, Mr. Lefkofsky co-founded Lightbank LLC, a private investment firm specializing in information technology companies, and has served as a manager since that time. In April 2006, Mr. Lefkofsky co-founded MediaBank, LLC (now Media Ocean), an electronic exchange and database that automates the procurement and administration of advertising media, and has served as a director or manager since that time. Mr. Lefkofsky also serves on the board of directors of Children's Memorial Hospital, the board of trustees of the Steppenwolf Theatre, the board of trustees of the Art Institute of Chicago and the board of trustees of the Museum of Science and Industry. Mr. Lefkofsky also serves on the board of directors of World Business Chicago. Mr. Lefkofsky is an Adjunct Professor at the University of Chicago Booth School of Business. Mr. Lefkofsky holds a bachelor's degree from the University of Michigan and a Juris Doctor degree from the University of Michigan Law School.
Jason Child has served as our Chief Financial Officer since December 2010. From March 1999 through December 2010, Mr. Child held several positions with Amazon.com, Inc. (NASDAQ: AMZN), including Vice President of Finance, International from April 2007 to December 2010, Vice President of Finance, Asia from July 2006 to July 2007, Director of Finance, Amazon Germany from April 2004 to July 2006, Director of Investor Relations from April 2003 to April 2004, Director of Finance, Worldwide Application Software from November 2001 to April 2003, Director of Finance, Marketing and Business Development from November 2000 to November 2001 and Global Controller from October 1999 to November 2000. Prior to joining Amazon.com, Mr. Child spent more than seven years as a C.P.A. and a consulting manager at Arthur Andersen. Mr. Child received his Bachelor of Arts from the Foster School of Business at the University of Washington.
Dane Drobny has served as our General Counsel and Corporate Secretary since July 2014. Prior to joining Groupon, Mr. Drobny was Senior Vice President, General Counsel and Corporate Secretary at Sears Holdings Corporation (NASDAQ: SHLD) from May 2010 to June 2014. Prior to joining Sears Holdings, he spent 17 years at the international law firm of Winston & Strawn LLP, most recently as a partner. Mr. Drobny holds a bachelor's degree from Colgate University and a Juris Doctor degree from Washington University School of Law.
Sri Viswanath has served as our Chief Technology Officer since October 2014 and our Senior Vice President of Engineering and Operations from April 2013 to October 2014. Prior to joining Groupon, he was Vice President of research and development for mobile computing at VMware, Inc. (NYSE: VMW) from September 2012 to April 2013. Prior to VMware, Mr. Viswanath was Senior Vice President of Engineering at Glam Media, Inc. and general manager of its publisher products group from November 2011 to August 2012. He also worked at Ning, Inc. from July 2008 to November 2011, most recently as Senior Vice President of Engineering. Before that, he worked at Sun Microsystems Inc. where he led the development of a number of open-source and business-to-business products from March 1999 to July 2008. Mr. Viswanath received his bachelors degree from Bangalore University in India, his Masters in Computer Science from Clemson University, and Masters in Management from Stanford University.
Brian Stevens has served as our Chief Accounting Officer since September 2012. Prior to joining Groupon, Mr. Stevens spent 16 years with KPMG LLP, most recently as an audit partner from October 2007 through August 2012. Mr. Stevens spent five years in KPMG's Department of Professional Practice (April 2003 to June 2006 and July 2008 to June 2010) and was a practice fellow at the Financial Accounting Standards Board from July 2006 through June 2008. Mr. Stevens is a member of the American Institute of Certified Public Accountants and serves on its Financial Reporting Executive Committee (FinREC). Mr. Stevens received his Bachelor of Science from the University of Illinois at Urbana-Champaign.
Available Information
10
The Company electronically files reports with the SEC. The public may read and copy any materials the Company has filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Copies of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free of charge through the Company's website (www.groupon.com), as soon as reasonably practicable after electronically filing with or otherwise furnishing such information to the SEC, and are available in print to any stockholder who requests it. The Company's Code of Conduct, Corporate Governance Guidelines and committee charters are also posted on the site. The Company uses its Investor Relations website (investor.groupon.com) as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.
ITEM 1A. RISK FACTORS
Our business, prospects, financial condition, operating results and the trading price of our Class A common stock could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. In assessing the risks described below, you should also refer to the other information contained in this Annual Report on Form 10-K, including Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the consolidated financial statements and the related notes in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Risks Related to Our Business
Our revenue and operating results may continue to be volatile.
Our revenue and operating results will continue to vary from quarter to quarter due to the rapidly evolving nature of our business. We believe that our revenue growth and ability to achieve and maintain profitability will depend, among other factors, on our ability to:
• | acquire new customers and retain existing customers; |
• | attract new merchants and retain existing merchants who wish to offer deals through the sale of Groupons; |
• | effectively address and respond to challenges in international markets; |
• | expand the number, variety and relevance of products and deals we offer, particularly as we attempt to build a more complete local marketplace; |
• | continue to achieve mobile adoption as customer usage continues to shift toward mobile devices; |
• | increase the awareness of our brand domestically and internationally; |
• | successfully achieve the anticipated benefits of business combinations or acquisitions; |
• | provide a superior customer service experience for our customers and merchants; |
• | avoid interruptions to our services, including as a result of cybersecurity breaches; |
• | respond to changes in consumer and merchant access to and use of the Internet and mobile devices; |
• | react to challenges from existing and new competitors; and |
• | respond to seasonal changes in supply and demand. |
In addition, our margins and profitability may depend on our product sales mix, our geographic revenue mix and merchant pricing terms. For example, sales in our Goods category, which typically carry lower margins than sales in our Local category, have grown faster in recent periods, which has resulted in lower margins and profitability during those periods. Accordingly, our profitability may vary significantly from quarter to quarter.
11
Our strategy to grow our local commerce marketplaces may not be successful and may expose us to additional risks.
One of our key objectives is to expand upon our traditional daily deals business by building out more extensive local commerce marketplaces. This strategy has required us to devote significant resources to attracting and retaining merchants who are willing to run deals on a continuous basis with us in order to build a significant inventory for our customers, as well as continuing management focus and attention. We have accepted, and expect to continue to accept, a lower portion of the gross billings from some of our merchants as we expand our marketplaces. In addition, we are continuously refining our process for presenting the most relevant deals to our customers based on their personal preferences. If we are not successful in pursuing these objectives, our business, financial position and results of operations could be harmed.
Our international operations are subject to increased challenges, and our inability to adapt to the varied commercial and regulatory landscapes of our international markets may adversely affect our business.
Our ability to grow our business in our international markets requires management attention and resources and requires us to localize our services to conform to a wide variety of local cultures, business practices, laws and policies. The different commercial and Internet infrastructure in other countries may make it more difficult for us to replicate our business model. In many countries, we compete with local companies that understand the local market better than we do, and we may not benefit from first-to-market advantages. We are subject to risks of doing business internationally, including the following:
• | our ability to maintain merchant and customer satisfaction such that our marketplace will continue to attract high quality merchants; |
• | our ability to successfully respond to macroeconomic challenges, including by optimizing our deal mix to take into account consumer preferences at a particular point in time; |
• | political, economic and civil instability and uncertainty (including acts of terrorism, civil unrest, labor unrest, violence and outbreaks of war); |
• | currency exchange rate fluctuations; |
• | strong local competitors, many of whom have been in the market longer than us or have greater resources in the local market; |
• | different regulatory requirements, including regulation of gift cards and coupon terms, Internet services, professional selling, distance selling, bulk emailing, privacy and data protection, banking and money transmitting, that may limit or prevent the offering of our services in some jurisdictions, cause unanticipated compliance expenses or limit our ability to enforce contractual obligations; |
• | difficulties in integrating with local payment providers, including banks, credit and debit card networks and electronic funds transfer systems; |
• | different employee/employer relationships and the existence of workers' councils and labor unions; |
• | shorter payment cycles and greater problems in collecting accounts receivable; |
• | higher Internet service provider costs; |
• | seasonal reductions in business activity; |
• | expenses associated with localizing our products, including offering customers the ability to transact business in the local currency; and |
• | differing intellectual property laws. |
We are subject to complex foreign and U.S. laws and regulations that apply to our international operations, including data privacy and protection requirements, the Foreign Corrupt Practices Act, the UK Anti-Bribery Act and similar local laws prohibiting certain payments to government officials, banking and payment processing regulations, and anti-competition regulations, among others. The cost of complying with these various and sometimes conflicting laws and regulations is substantial. We have implemented policies and procedures to ensure compliance with these laws and regulations, however, we cannot assure
12
you that our employees, contractors, or agents will not violate our policies. Changing laws, regulations and enforcement actions in the U.S. and throughout the world could harm our business. If commercial and regulatory constraints in our international markets restrict our ability to conduct our operations or execute our strategic plan, our business may be adversely affected.
Our financial results will be adversely affected if we are unable to execute on our marketing strategy.
Our marketing strategy is primarily focused on customer activation and mobile application downloads, as well as increasing awareness of our shift to offer more complete local commerce marketplaces. We increased our marketing expense to $269.0 million during 2014 as compared to $214.8 million during 2013. Additionally, our marketing activities also include elements that are not presented as "Marketing" on our consolidated statements of operations, such as order discounts and free shipping on merchandise sales. If our assumptions regarding our marketing activities and strategies prove incorrect, our ability to generate profits from our investments may be less than we have assumed. In such case, we may need to increase expenses or otherwise alter our strategy and our results of operations could be negatively impacted.
If we fail to retain our existing customers or acquire new customers, our revenue and business will be harmed.
We must continue to retain and acquire customers that make purchases on our platform in order to increase revenue and achieve consistent profitability. As our customer base continues to evolve, it is possible that the composition of our customers may change in a manner that makes it more difficult to generate revenue to offset the loss of existing customers and the costs associated with acquiring and retaining customers. If customers do not perceive our offerings to be attractive or if we fail to introduce new and more relevant deals, we may not be able to retain or acquire customers at levels necessary to grow our business and profitability. For example, Pages, which provides our customers with information about merchants, including tips from customers, may not result in additional revenue from new or existing customers sufficient to offset the cost of building and maintaining this platform. If we are unable to acquire new customers in numbers sufficient to grow our business and offset the number of existing active customers that cease to make purchases, the revenue we generate may decrease and our operating results will be adversely affected.
Our future success depends upon our ability to retain and add high quality merchants.
We depend on our ability to attract and retain merchants that are prepared to offer products or services on compelling terms through our marketplaces and provide our customers with a good experience. We do not have long-term arrangements to guarantee the availability of deals that offer attractive quality, value and variety to customers or favorable payment terms to us. Currently, when a merchant works with us to offer a deal for its products or services, it receives an agreed-upon portion of the total proceeds from each Groupon sold and we retain the rest. If merchants decide that utilizing our services no longer provides an effective means of attracting new customers or selling their goods and services, they may require a higher portion of the total proceeds from each Groupon sold. Additionally, if we are unsuccessful in our efforts to introduce services to merchants as part of our initiatives to achieve adoption of our tablet-based platform for merchants, we will not experience a corresponding growth in our merchant pool sufficient to offset the cost of these initiatives. We must continue to attract and retain merchants in order to increase revenue and profitability. If new merchants do not find our marketing and promotional services effective, or if existing merchants do not believe that utilizing our services provides them with a long-term increase in customers, revenue or profits, they may stop making offers through our marketplaces. 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 portion of the purchase price than we currently offer, or if we target merchants who will only agree to run deals if they receive a higher portion of the proceeds, we may receive a lower portion of the gross billings on deals offered through our marketplaces. In addition, we may experience attrition in our merchants in the ordinary course of business resulting from several factors, including losses to competitors and merchant closures or bankruptcies. If we are unable to attract new merchants in numbers sufficient to grow our business, or if merchants are unwilling to offer products or services with compelling terms through our marketplaces or offer favorable payment terms to us, our operating results will be adversely affected.
If our efforts to market, advertise and promote products and services from our existing merchants are not successful, or if our existing merchants do not believe that utilizing our services provides them with a long-term increase in customers, revenue or profits, we may not be able to retain or attract merchants in sufficient numbers to grow our business or we may incur significantly higher marketing expenses or reduce margins, as experienced in 2014, in order to attract new merchants. A significant increase in merchant attrition or decrease in merchant growth would have an adverse effect on our business, financial condition and results of operations.
We may be subject to breaches of our information technology systems, which could harm our relationships with our customers and merchants, subject us to negative publicity and litigation, and cause substantial harm to our business.
13
In operating a global online business, we and our third party service providers maintain significant proprietary information and manage large amounts of personal data and confidential information about our employees, customers and merchants. Because of our high profile and the number of customer records we maintain, we and the third party providers are at an increased risk of attacks on our systems.
Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, our prominent size and scale, the large number of transactions that we process, our payment processing and point of sale offerings, our expanded geographic footprint and international presence, our use of open source software and technologies, the outsourcing of some of our business operations and continued threats of cyber-attacks. Although cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access are a high priority for us, this may not successfully protect our systems against all vulnerabilities, including technologies developed to bypass our security measures. In addition, outside parties may attempt to fraudulently induce employees, merchants or customers to disclose sensitive information in order to gain access to our secure systems and networks.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Further, because the techniques used to gain access to, or sabotage, systems often are not recognized until launched against a target, we may be unable to anticipate the correct methods necessary to defend against these types of attacks. Any actual breach, the perceived threat of a breach or a perceived breach, could cause our customers and merchants to cease doing business with us, subject us to lawsuits, regulatory fines or other action or liability, which would harm our business, financial condition and results of operations.
We may incur losses in the future as we expand our business.
We had an accumulated deficit of $922.0 million as of December 31, 2014. We anticipate that our financial results will be impacted as we continue to invest in our growth, through increased spending in some areas and through accepting a lower portion of the proceeds from our deals, as we attempt to add more merchants to our marketplaces. These efforts may prove more difficult than we currently anticipate, and we may not succeed in realizing the benefits of these efforts in a short time frame, or at all. Many of our efforts to generate revenue from our business are new and unproven, and any failure to increase our revenue, as well as any changes in our mix of sales between our higher and lower margin categories, could prevent us from attaining or increasing, or could reduce, our profitability. We cannot be certain that we will be able to attain or increase profitability on a quarterly or annual basis. If we are unable to effectively manage these risks and difficulties as we encounter them, our business, financial condition and results of operations may suffer.
We operate in a highly competitive industry with relatively low barriers to entry, and must compete successfully in order to grow our business.
We expect competition in e-commerce generally, and group buying in particular, to continue to increase. A substantial number of group buying sites that attempt to replicate our business model are operating around the world. In addition to such competitors, we expect to increasingly compete against other large businesses who offer deals similar to ours as an add-on to their core business. We also expect to compete against other Internet sites and mobile applications that serve niche markets and interests. In some of our categories, such as goods, travel and entertainment, we compete against much larger companies who have more resources and significantly larger scale. In addition, we compete with traditional offline coupon and discount services, as well as newspapers, magazines and other traditional media companies who provide coupons and discounts on products and services.
We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including the following:
• | the size and composition of our customer base and the number of merchants we feature; |
• | the timing and market acceptance of deals we offer, including the developments and enhancements to those deals offered by us or our competitors; |
• | customer and merchant service and support efforts; |
• | selling and marketing efforts; |
• | ease of use, performance, price and reliability of services offered either by us or our competitors; |
14
• | our ability to generate large volumes of sales, particularly with respect to goods and travel deals; |
• | our ability to cost-effectively manage our operations; and |
• | our reputation and brand strength relative to our competitors. |
Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to benefit from their existing customer base with lower customer acquisition costs or to respond more quickly than we can to new or emerging technologies and changes in consumer habits. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build larger customer bases or generate revenue from their customer bases more effectively than we do. Our competitors may offer deals that are similar to the deals we offer or that achieve greater market acceptance than the deals we offer. This could attract customers away from our websites and applications, reduce our market share and adversely impact our gross margin. In addition, we are dependent on some of our existing or potential competitors for banner advertisements and other marketing initiatives to acquire new customers. Our ability to utilize their platforms to acquire new customers may be adversely affected if they choose to compete more directly with us or prevent us from using their services.
Our operating cash flow and results of operations could be adversely impacted if we change our merchant payment terms or our revenue does not grow.
Our merchant payment terms and revenue growth have historically provided us with operating cash flow to fund our working capital needs. Our merchant arrangements are generally structured such that we collect cash up front when our customers purchase Groupons and make payments to our merchants at a subsequent date, either on a fixed schedule or upon redemption by customers. We currently pay our merchants upon redemption in many deals in our international markets, but we may continue to move toward offering payments on a fixed schedule in those markets.
Our accrued merchant and supplier payable balance increased from $752.9 million as of December 31, 2013, to $910.6 million as of December 31, 2014, due primarily to our acquisition of Ticket Monster and the continued growth of our Goods category in 2014. We have used the operating cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs. If we offer our merchants more favorable or accelerated payment terms or our revenue does not 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 success is dependent upon our ability to provide a superior mobile experience for our customers, and our customers' continued ability to access our offerings through mobile devices.
In the fourth quarter of 2014, more than 50% of our global transactions were completed on mobile devices. Additionally, almost 110 million people have downloaded our mobile applications worldwide as of January 31, 2015. In order to continue to grow our mobile transactions, it is critical that our applications work well with a range of mobile technologies, systems, networks and standards. Our business may be adversely affected if our customers choose not to access our offerings on their mobile devices or use mobile devices that do not offer access to our mobile applications.
Our business depends on our ability to maintain and scale the network infrastructure necessary to send our emails and operate our websites, mobile applications and transaction processing systems, and any significant disruption in service on our email infrastructure, websites, mobile applications or transaction processing systems could result in a loss of subscribers, customers or merchants.
Customers access our deals through our websites and mobile applications, as well as via emails that are often targeted by location, purchase history and personal preferences. Customers can also access our deal offerings indirectly through search engines and other indirect channels. Our reputation and ability to acquire, retain and serve our current customers and potential customers are dependent upon the reliable performance of our websites, mobile applications, email delivery and transaction processing systems and the underlying network infrastructure. As our customer base and the amount of information shared on our websites and applications continue to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue to spend substantial amounts on data centers and equipment and related network infrastructure to handle the traffic on our websites and applications. The operation of these systems is expensive and complex and could result in operational failures. In the event that our subscriber base or the amount of traffic and transactions on our websites and applications grows more quickly than anticipated, we may be required to incur significant additional costs. Interruptions in these systems, whether due to system failures, computer viruses, physical or electronic break-ins or otherwise (including spam filters preventing
15
emails from reaching current and potential customers), could affect the security or availability of our websites and applications, and prevent our customers from accessing our services. If we do not maintain or expand our network infrastructure successfully or if we experience operational failures or a prolonged disruption in the availability of a significant search engine, we could lose current and potential customers and merchants, which could harm our operating results and financial condition.
In addition, a portion of our network infrastructure is hosted by third party providers. Any failure of these providers to handle existing or increased traffic and transactions could significantly harm our business. Any financial or other difficulties these providers face may adversely affect our business, and we exercise little control over these providers, which increases our vulnerability to problems with the services they provide.
If our emails are not delivered and accepted, or are routed by email providers in a less favorable way than other emails, our business may be substantially harmed.
If email providers implement new or more restrictive email delivery policies it may become more difficult to deliver emails to customers. For example, certain email providers, including Google, categorize our emails as "promotional," and these emails are directed to an alternate, and less readily accessible, section of a customer's inbox. If email providers materially limit or halt the delivery of our emails, or if we fail to deliver emails to customers in a manner compatible with email providers’ email handling or authentication technologies, our operating results and financial condition could be substantially harmed. In addition, if we are placed on "spam" lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our ability to contact customers through email could be significantly restricted.
We purchase and sell some products from indirect suppliers, which increases our risk of litigation and other losses.
We source merchandise both directly from brand owners and indirectly from retailers and third party distributors, and we often take title to the goods before we offer them for sale to our customers. Further, some brand owners, retailers and third party distributors may be unwilling to offer products for sale on the Internet or through Groupon in particular, which could have an adverse impact on our ability to source and offer popular products. By selling merchandise sourced from parties other than the brand owners, we are subject to an increased risk that the merchandise may be damaged or non-authentic, which could result in potential liability under applicable laws, regulations, agreements and orders, and increase the amount of returned merchandise. In addition, brand owners may take legal action against us, which even if we prevail could result in costly litigation, generate adverse publicity for us, and have a material adverse impact on our business, financial condition and results of operations.
We are subject to inventory management and order fulfillment risks as a result of our Goods category.
We purchase much of the merchandise that we offer for sale to our customers, and we expect to increase the percentage of merchandise that we offer directly for sale as compared to merchandise that our customers purchase directly from third parties. The demand for products can change for a variety of reasons, including customer preference, quality, seasonality, and the perceived value from customers of purchasing the product through us. In addition, we have a limited historical basis upon which to predict customer demand for the products. If we are unable to adequately predict customer demand and efficiently manage our inventory, we could either have an excess or a shortage of inventory, either of which would have a material adverse effect on our business.
Purchasing the goods ourselves prior to the sale also means that we will be required to fulfill orders on a timely, efficient and cost-effective basis. Many other online retailers have significantly larger inventory balances and therefore are able to rely on past experience and economies of scale to optimize their order fulfillment. Because we rely on third party logistics providers for much of our order fulfillment and delivery, many parts of our supply chain are outside our control. Delays or inefficiencies in our processes, or those of our third party logistics providers, could subject us to additional costs, as well as customer dissatisfaction, which would adversely affect our business. Additionally, we assume the risks of inventory damage, theft and obsolescence, as well as risks of price erosion for these products. These risks are especially significant because some of the merchandise we sell is characterized by seasonal trends, fashion trends, obsolescence and price erosion and because we sometimes make large purchases of particular types of inventory. Our success will depend on our ability to sell our inventory rapidly, the ability of our buying staff to purchase inventory at attractive prices relative to its resale value and our ability to manage customer returns and other costs. If we are unsuccessful in any of these areas, we may be forced to sell our inventory at a discount or loss.
The integration of our international operations with our North American technology platform may result in business interruptions.
We currently use a common technology platform in our North America segment to operate our business and are close to fully implementing this platform in most EMEA counties but have not yet substantially rolled out this platform to the countries in our Rest of World segment. Such changes to our technology platform and related software carry risks such as cost overruns,
16
project delays and business interruptions and delays. If we experience a material business interruption as a result of this process, it could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our Class A common stock to decline.
We are involved in pending litigation and an adverse resolution of such litigation may adversely affect our business, financial condition, results of operations and cash flows.
We are involved in litigation regarding, among other matters, patent, consumer, securities and employment issues. Litigation can be expensive, time-consuming and disruptive to normal business operations. The results of complex legal proceedings are often uncertain and difficult to predict. An unfavorable outcome with respect to any of these lawsuits could have a material adverse effect on our business, financial condition, results of operations or cash flows. For additional information regarding these and other lawsuits in which we are involved, see Note 8 "Commitments and Contingencies" to the consolidated financial statements.
An increase in our refund rates could reduce our liquidity and profitability.
As we increase our revenue and expand our product offerings, our customer refund rates may exceed 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.
We use 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 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, expanding our product and service offerings 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. For example, the U.S. dollar has appreciated significantly against the Euro in recent periods. 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 technology and product development, customer support and other
17
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.
We may have exposure to greater than anticipated tax liabilities.
We are subject to income taxes in the United States (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. Our income tax obligations are based on our corporate operating structure, including the manner in which we develop, value and use our intellectual property and the scope of our international operations.
The tax laws applicable to our international business activities, including the laws of the United States and other jurisdictions, are subject to interpretation. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position and results of operations. In addition, there are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The U.S., many countries in the European Union, and a number of other countries are actively considering changes in this regard. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.
We also are subject to regular review and audit by both U.S. federal and state and foreign tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.
The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially affect our financial position and results of operations.
The current administration continues to make public statements indicating that it has made international tax reform a priority, and members of the U.S. Congress have conducted hearings and proposed a wide variety of potential changes. Certain changes to U.S. tax laws, including limitations on the ability to defer U.S. taxation on earnings outside of the United States until those earnings are repatriated to the United States, could affect the tax treatment of our foreign earnings, as well as cash and cash equivalent balances we currently maintain outside of the United States. Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations.
The implementation of the CARD Act and similar state and foreign laws may harm our business and results of operations.
18
It is not clear at this time, but Groupons may be considered gift cards, gift certificates, stored value cards or prepaid cards and therefore governed by, among other laws, the CARD Act, and state laws governing gift cards, stored value cards and coupons. Other foreign jurisdictions have similar laws in place, in particular European jurisdictions where the European E-Money Directive regulates the business of electronic money institutions. Many of these laws contain provisions governing the use of gift cards, gift certificates, stored value cards or prepaid cards, including specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the imposition of certain fees. For example, if Groupons are subject to the CARD Act and are not included in the exemption for promotional programs, it is possible that the purchase value, which is the amount equal to the price paid for the Groupon, or the promotional value, which is the add-on value of the Groupon in excess of the price paid, or both, may not expire before the later of (i) five years after the date on which the Groupon was issued; (ii) the Groupon's stated expiration date (if any); or (iii) a later date provided by applicable state law. We and several merchants are currently defendants in purported class action litigation that has been filed in federal and state court claiming that Groupons are subject to the CARD Act and various state laws governing gift cards and that the defendants have violated these laws by issuing Groupons with expiration dates and other restrictions. In the event that it is determined that Groupons are subject to the CARD Act or any similar state or foreign law or regulation, and are not within various exemptions that may be available to Groupon under the CARD Act or under some of the various state or foreign jurisdictions, our liabilities with respect to unredeemed Groupons may be materially higher than the amounts shown in our financial statements and we may be subject to additional fines and penalties. In addition, if federal or state laws require that the face value of Groupons have a minimum expiration period beyond the period desired by a merchant for its promotional program, or no expiration period, this may affect the willingness of merchants to issue Groupons in jurisdictions where these laws apply.
If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed Groupons, our results from operations could be materially and adversely affected.
In certain states and foreign jurisdictions, Groupons may be considered a gift card. Some of these states and foreign jurisdictions include gift cards under their unclaimed and abandoned property laws which require companies to remit to the government the value of the unredeemed balance on the gift cards after a specified period of time (generally between one and five years) and impose certain reporting and record-keeping obligations. We do not remit any amounts relating to unredeemed Groupons based on our assessment of applicable laws. The analysis of the potential application of the unclaimed and abandoned property laws to Groupons is complex, involving an analysis of constitutional and statutory provisions and factual issues, including our relationship with customers and merchants and our role as it relates to the issuance and delivery of a Groupon. In the event that one or more states or foreign jurisdictions successfully challenges our position on the application of its unclaimed and abandoned property laws to Groupons, or if the estimates that we use in projecting the likelihood of Groupons being redeemed prove to be inaccurate, our liabilities with respect to unredeemed Groupons may be materially higher than the amounts shown in our financial statements. If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed gift cards, our net income could be materially and adversely affected. Moreover, a successful challenge to our position could subject us to penalties or interest on unreported and unremitted sums, and any such penalties or interest would have a further material adverse impact on our net income.
Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet or other online services. These regulations and laws may involve taxation, tariffs, subscriber privacy, anti-spam, data protection, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. In addition, it is possible that governments of one or more countries may seek to censor content available on our websites and applications or may even attempt to completely block our emails or access to our websites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries, our ability to retain or increase our customer base may be adversely affected and we may not be able to maintain or grow our revenue as anticipated.
19
New tax treatment of companies engaged in Internet commerce may adversely affect the commercial use of our services and our financial results.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to regulate our transmissions or levy sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in Internet commerce. New or revised international, federal, state or local tax regulations may subject us or our customers to additional sales, income and other taxes. We cannot predict the effect of current attempts to impose sales, income or other taxes on commerce over the Internet. New or revised taxes and, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the Internet. New taxes could also create significant increases in internal costs necessary to capture data, and collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations.
Failure to comply with federal, state and international privacy laws and regulations, or the expansion of current or the enactment of new privacy laws or regulations, could adversely affect our business.
A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. The existing privacy-related laws and regulations are evolving and subject to potentially differing interpretations. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. For example, recently there have been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones and other mobile devices. We have posted privacy policies and practices concerning the collection, use and disclosure of subscriber data on our websites and applications. Several Internet companies have incurred substantial penalties for failing to abide by the representations made in their privacy policies and practices. In addition, several states have adopted legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice to consumers in the event of a security breach. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could adversely affect our business. In addition, a failure or perceived failure to comply with industry standards or with our own privacy policies and practices could result in a loss of subscribers or merchants and adversely affect our business. Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third party web "cookies" for behavioral advertising. The regulation of these cookies and other current online advertising practices could adversely affect our business.
We may suffer liability as a result of information retrieved from or transmitted over the Internet and claims related to our service offerings.
We may be, and in certain cases have been, sued for defamation, civil rights infringement, negligence, patent, copyright or trademark infringement, invasion of privacy, personal injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other legal claims relating to information that is published or made available on our websites or service offerings we make available (including provision of an application programming interface platform for third parties to access our website, mobile device services and geolocation applications). This risk is enhanced in certain jurisdictions outside the United States, where our liability for such third party actions may be less clear and we may be less protected. In addition, we could incur significant costs in investigating and defending such claims, even if we ultimately are not found liable. If any of these events occurs, our net income could be materially and adversely affected.
We are subject to risks associated with information disseminated through our websites and applications, including consumer data, content that is produced by our editorial staff and errors or omissions related to our product offerings. Such information, whether accurate or inaccurate, may result in our being sued by our merchants, subscribers or third parties and as a result our revenue and goodwill could be materially and adversely affected.
We may not be able to adequately protect our intellectual property rights or may be accused of infringing intellectual property rights of third parties.
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, merchant lists, subscriber lists, sales methodology and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection and confidentiality and/or license agreements with our employees and others to protect our proprietary rights. Effective intellectual property protection may not be available in every country in which our deals are made available. We also may not be able to acquire or maintain appropriate domain names or trademarks in all countries in
20
which we do business. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring and using domain names that are similar to, infringe upon or diminish the value of our trademarks and other proprietary rights. We may be unable to prevent third parties from using and registering our trademarks, or trademarks that are similar to, or diminish the value of, our trademarks in some countries.
We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. Third parties that license our intellectual property rights also may take actions that diminish the value of our proprietary rights or reputation. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights. We are currently subject to multiple lawsuits and disputes related to our intellectual property and service offerings. We may in the future be subject to additional litigation and disputes. The costs of engaging in such litigation and disputes are considerable, and there can be no assurances that favorable outcomes will be obtained.
We are currently subject to third party claims that we infringe their proprietary rights or trademarks and expect to be subject to additional claims in the future. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against us or the payment of damages by us. We may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.
Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, or if we receive unfavorable media coverage, our ability to expand our base of customers and merchants could be impaired and our business and operating results could be harmed.
We believe that the brand identity that we have developed has significantly contributed to the success of our business. We also believe that maintaining and enhancing the "Groupon" brand is critical to expanding our base of customers and merchants. Maintaining and enhancing our brand may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain the "Groupon" brand, or if we incur excessive expenses in this effort, our business, operating results and financial condition will be materially and adversely affected. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive. Maintaining and enhancing our brand will depend largely on our ability to be a group buying leader and to continue to provide reliable, trustworthy and high quality deals, which we may not do successfully.
We receive a high degree of media coverage around the world. Unfavorable publicity or consumer perception of our websites, applications, practices or service offerings, or the offerings of our merchants, could adversely affect our reputation, 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, dispositions, joint ventures and strategic investments could result in operating difficulties, dilution and other consequences.
We routinely evaluate and consider a wide array of potential strategic transactions, including acquisitions and dispositions of businesses, joint ventures, technologies, services, products and other assets and minority investments, some of which we consummate. These activities can result in operating difficulties, dilution, management distraction and other potentially adverse 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 $259.4 million, and Ideel, which we acquired on January 13, 2014 for total consideration of $42.7 million. We have hired advisers to help us explore a range of financing and strategic alternatives for Ticket Monster and certain other Asian markets. As part of that process, multiple parties have expressed preliminary interest in Ticket Monster. However, we cannot provide any assurance as to the pricing, timetable or structure of any transaction, or the likelihood of any transaction being completed. Furthermore, if we consummate such a strategic transaction, we may not successfully realize the anticipated benefits of the transaction.
Acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquired business, integration risks such as 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. 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
21
not have the ability to exert control over our minority investments, and therefore we are dependent on others in order to realize their potential benefits. Dispositions and attempted dispositions also involve significant risks and uncertainties, such as the risk of destabilizing the applicable operations or the loss of key personnel, as well as uncertainties with respect to the separation of disposed operations, the terms and timing of any dispositions and the ability to obtain necessary governmental or regulatory approvals. Further, we may be unable to successfully complete potential strategic transactions on a timely basis or at all, or we may not realize the anticipated benefits of any or all of our strategic transactions, or we may not realize them in the time frame expected.
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. 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 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. 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 to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from customers or facilitate other types of online payments, and our business and operating results could be adversely affected.
We are also subject to or voluntarily comply with a number of other laws and regulations relating to money laundering, international money transfers, privacy and information security and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our payment processing service business. In addition, events affecting our third party payment processors, including cyber-attacks, Internet or other infrastructure or communications impairment or other events that could interrupt the normal operation of our payment processors, could have a material adverse effect on our business.
When we process credit card payments for merchants, we may be subject to chargeback liability if our merchants refuse or cannot reimburse chargebacks resolved in favor of their customers.
22
We offer a credit card payment processing service to merchants. If we process a payment that is successfully disputed by the customer at a later date, the transaction is normally "charged back" to the merchant and the purchase price is credited or otherwise refunded to the cardholder. If we or our clearing bank is unable to collect such amounts from the merchant's account, or if the merchant refuses or is unable, due to closure, bankruptcy or other reasons, to reimburse us for the chargeback, we bear the loss for the amount of the refund paid to the cardholder. Any chargebacks not paid by merchants may adversely affect our financial condition and results of operations. In addition, if our clearing bank terminates our relationship and we are unable to secure a relationship with another clearing bank, we would be unable to process payments.
Federal laws and regulations, such as the Bank Secrecy Act and the USA PATRIOT Act and similar foreign laws, could be expanded to include Groupons.
Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations, such as the European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, impose certain anti-money laundering requirements on companies that are financial institutions or that provide financial products and services. For these purposes, financial institutions are broadly defined to include money services businesses such as money transmitters, check cashers and sellers or issuers of stored value cards. Examples of anti-money laundering requirements imposed on financial institutions include subscriber identification and verification programs, record retention policies and procedures and transaction reporting. We do not believe that we are a financial institution subject to these laws and regulations based, in part, upon the characteristics of Groupons and our role with respect to the distribution of Groupons to subscribers. However, the Financial Crimes Enforcement Network, a division of the U.S. Treasury Department tasked with implementing the requirements of the Bank Secrecy Act, recently proposed amendments to the scope and requirements for parties involved in stored value or prepaid access cards, including a proposed expansion of financial institutions to include sellers or issuers of prepaid access cards. In the event that this proposal is adopted as proposed, it is possible that a Groupon could be considered a financial product and that we could be a financial institution. In the event that we become subject to the requirements of the Bank Secrecy Act or any other anti-money laundering law or regulation imposing obligations on us as a money services business, our regulatory compliance costs to meet these obligations would likely increase which could reduce our net income.
State and foreign laws regulating money transmission could be expanded to include Groupons.
Many states and certain foreign jurisdictions impose license and registration obligations on those companies engaged in the business of money transmission, with varying definitions of what constitutes money transmission. We do not currently believe we are a money transmitter given our role and the product terms of Groupons. However, a successful challenge to our position or expansion of state or foreign laws could subject us to increased compliance costs and delay our ability to offer Groupons in certain jurisdictions pending receipt of any necessary licenses or registrations.
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.
We may in the future be required to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. In addition, we are party to a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of August 1, 2014 (the "Credit Agreement"), but our ability to borrow funds under the Credit Agreement is subject to continued compliance with the financial covenants and other terms set forth therein. Furthermore, additional equity financing may dilute the interests of our common stockholders, and debt financing, if available, may involve restrictive covenants that could restrict our business activities or our ability to execute our strategic objectives and could reduce our profitability. If we cannot raise or borrow funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
Risks Related to Ownership of Our Class A Common Stock
The trading price of our Class A common stock is highly volatile.
Our Class A common stock began trading on the NASDAQ Global Select Market on November 4, 2011 and since that date has fluctuated from a high of $31.14 per share to a low of $2.60 per share. We expect that the trading price of our stock will continue to be volatile due to variations in our operating results and also may change in response to other factors, including factors specific to technology and Internet commerce companies, many of which are beyond our control. Among the factors that could affect our stock price are:
• | our financial results; |
23
• | any financial projections that we provide to the public, any changes in these projections or our failure for any reason to meet these projections or projections made by research analysts; |
• | the amount of shares of our Class A common stock that are available for sale; |
• | the relative success of competitive products or services; |
• | the public's response to press releases or other public announcements by us or others, including our filings with the SEC and announcements relating to litigation; |
• | speculation about our business in the press or the investment community; |
• | future sales of our Class A common stock by our significant stockholders, officers and directors; |
• | announcements about our share repurchase program and purchases under the program; |
• | changes in our capital structure, such as future issuances of debt or equity securities; |
• | our entry into new markets or exit from existing markets; |
• | regulatory developments in the United States or foreign countries; |
• | strategic acquisitions, joint ventures or restructurings announced or consummated by us or our competitors; |
• | strategic dispositions of businesses or other assets announced or consummated by us; and |
• | changes in accounting principles. |
We expect the stock price volatility to continue for the foreseeable future as a result of these and other factors.
Purchases of shares of our Class A common stock pursuant to our stock repurchase program may affect the value of our Class A common stock.
Pursuant to our publicly announced share repurchase program, we are authorized to repurchase up to $300.0 million of our outstanding Class A common stock through August 2015 and have approximately $101.5 million remaining under this authorization as of December 31, 2014. The timing and amount of any share repurchases will be determined based on market conditions, share price and other factors. This activity could increase (or reduce the size of any decrease in) the market price of our Class A common stock at that time.
If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their opinion of our shares, industry sector or products, our share price would likely decline. If one or more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
The concentration of our capital stock ownership with our founders, executive officers, employees and directors and their affiliates will limit stockholders' ability to influence corporate matters.
Our Class B common stock has 150 votes per share and our Class A common stock has one vote per share. As of February 9, 2015, our founders, Eric Lefkofsky, Bradley Keywell and Andrew Mason control 100% of our outstanding Class B common stock and, based on information available to us, approximately 23.0% of our outstanding Class A common stock, representing approximately 49.8% of the voting power of our outstanding capital stock. Messrs. Lefkofsky, Keywell and Mason will therefore have significant influence over management and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. This concentrated control will limit stockholders' ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. As a result, the market price of our Class A common stock could be adversely affected.
24
We do not intend to pay dividends for the foreseeable future.
We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business and do not anticipate paying cash dividends. As a result, stockholders can expect to receive a return on their investment in our Class A common stock only if the market price of the stock increases.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws, as amended and restated upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
• | Our certificate of incorporation provides for a dual class common stock structure. As a result of this structure, our founders will have significant influence over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets. This concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that other stockholders may view as beneficial. |
• | Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors. |
• | Special meetings of our stockholders may be called only by our Executive Chairman of the Board, our Chief Executive Officer, our board of directors or holders of not less than the majority of our issued and outstanding capital stock. This limits the ability of minority stockholders to take certain actions without an annual meeting of stockholders. |
• | Our stockholders may not act by written consent unless the action to be effected and the taking of such action by written consent is approved in advance by our board of directors. As a result, a holder, or holders, controlling a majority of our capital stock would generally not be able to take certain actions without holding a stockholders' meeting. |
• | Our certificate of incorporation prohibits cumulative voting in the election of directors. This limits the ability of minority stockholders to elect director candidates. |
• | Stockholders must provide timely notice to nominate individuals for election to the board of directors or to propose matters that can be acted upon at an annual meeting of stockholders. These provisions may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror's own slate of directors or otherwise attempting to obtain control of our company. |
• | Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. |
25
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
As of December 31, 2014, the Company had leases for approximately 1.7 million square feet of space. Our corporate headquarters and principal executive offices are located in Chicago, Illinois. Other properties are located throughout the world and largely represent local operating facilities. We believe that our properties are in good condition and meet the needs of our business, and that suitable additional or alternative space will be available as needed to accommodate our business operations and future growth.
Description of Use | Segment | Square Feet | Various lease expirations through |
Corporate offices | North America | 504,000 | December 2023 |
Corporate offices | EMEA | 389,000 | June 2024 |
Corporate offices | Rest of World | 414,000 | June 2018 |
Fulfillment and data centers | North America | 331,000 | December 2018 |
Fulfillment and data centers | EMEA | 16,000 | March 2019 |
Fulfillment and data centers | Rest of World | 51,000 | August 2016 |
ITEM 3: LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Note 8 "Commitments and Contingencies" to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
26
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock has been listed on the NASDAQ Global Select Market under the symbol "GRPN" since November 4, 2011. The following table sets forth the high and low intraday sales price for our Class A common stock as reported by the NASDAQ Global Select Market for each of the years listed.
2013 | High | Low | ||||
First Quarter | $ | 6.36 | $ | 4.24 | ||
Second Quarter | $ | 8.69 | $ | 5.37 | ||
Third Quarter | $ | 12.76 | $ | 8.26 | ||
Fourth Quarter | $ | 12.31 | $ | 8.40 | ||
2014 | High | Low | ||||
First Quarter | $ | 12.42 | $ | 7.61 | ||
Second Quarter | $ | 8.24 | $ | 5.18 | ||
Third Quarter | $ | 7.28 | $ | 5.68 | ||
Fourth Quarter | $ | 8.43 | $ | 5.72 | ||
Holders
As of February 9, 2015, there were 182 holders of record of our Class A common stock and three holders of record of our Class B common stock. Each share of our Class A common stock is entitled to one vote per share. Each share of our Class B common stock is entitled to 150 votes per share and is convertible at any time into one share of Class A common stock.
Dividend Policy
We currently do not anticipate paying dividends on our Class A common stock or Class B common stock in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
Equity Compensation Plan Information
Information about the securities authorized for issuance under our compensation plans is incorporated by reference from the Company's Proxy Statement for the 2015 Annual Meeting of Stockholders.
Recent Sales of Unregistered Securities
On November 13, 2014, we acquired all of the outstanding capital stock of Swarm Solutions, Inc. ("Swarm"). In connection with the closing of this transaction, we issued an aggregate of 1,429,897 shares of Class A common stock as consideration to the stockholders of Swarm.
These issuances of shares of Class A common stock were exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") in reliance upon Section 4(a)(2) or Regulation D of the Securities Act as transactions by an issuer not involving any public offering. The stockholders who received shares of our Class A common stock made representations to us as to their accredited investor status and as to their investment intent and financial sophistication. Appropriate legends were placed upon any book-entry entitlements issued with respect to such shares of Class A common stock.
Issuer Purchases of Equity Securities
27
In August 2013, our Board of Directors authorized a share repurchase program. Under the program, we are authorized to repurchase up to $300.0 million of our outstanding Class A common stock through August 2015. The timing and amount of any share repurchases will be determined based on market conditions, share price and other factors, and the program may be discontinued or suspended at any time. We will fund the repurchases through cash on hand and future cash flow. Repurchases will be made in compliance with SEC rules and other legal requirements and may be made in part under a Rule 10b5-1 plan, which permits stock repurchases when the Company might otherwise be precluded from doing so.
During the three months ended December 31, 2014, we purchased 1,152,100 shares of Class A common stock for an aggregate purchase price of $8.1 million (including fees and commissions) under the share repurchase program. A summary of our Class A common stock repurchases during the three months ended December 31, 2014 under the repurchase program is set forth in the following table:
Date | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program | ||||||||||
October 1-31, 2014 | 468,100 | $ | 6.24 | 468,100 | $ | 107,000,000 | ||||||||
November 1-30, 2014 | 319,400 | $ | 7.60 | 319,400 | $ | 105,000,000 | ||||||||
December 1-31, 2014 | 364,600 | $ | 7.58 | 364,600 | $ | 102,000,000 | ||||||||
Total | 1,152,100 | $ | 7.04 | 1,152,100 | $ | 102,000,000 | ||||||||
28
Stock Performance Graph
This performance graph shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Groupon, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. Our stock price performance shown in the graph below is not indicative of our future stock price performance.
The graph set forth below compares the cumulative total return on our class A common stock with the cumulative total return of the Nasdaq Composite Index and the Nasdaq 100 Index, resulting from an initial investment of $100 in each and assuming the reinvestment of any dividends, based on closing prices. Measurement points are our initial public offering date of November 4, 2011 and the last trading day of each year end period for 2011, 2012, 2013 and 2014.
Source: Yahoo! Finance
29
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the accompanying notes thereto in Item 8 of this Annual Report on Form 10-K, and the information contained in Item 7 of this Annual Report on Form 10-K "Management's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results.
Year Ended December 31, | |||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
(in thousands, except share and per share amounts) | |||||||||||||||||||
Consolidated Statements of Operations Data: | |||||||||||||||||||
Revenue: | |||||||||||||||||||
Third party and other | $ | 1,627,539 | $ | 1,654,654 | $ | 1,879,729 | $ | 1,589,604 | $ | 312,941 | |||||||||
Direct | 1,564,149 | 919,001 | 454,743 | 20,826 | — | ||||||||||||||
Total revenue | 3,191,688 | 2,573,655 | 2,334,472 | 1,610,430 | 312,941 | ||||||||||||||
Cost of revenue: | |||||||||||||||||||
Third party and other | 241,885 | 232,062 | 297,739 | 243,789 | 42,896 | ||||||||||||||
Direct | 1,400,617 | 840,060 | 421,201 | 15,090 | — | ||||||||||||||
Total cost of revenue | 1,642,502 | 1,072,122 | 718,940 | 258,879 | 42,896 | ||||||||||||||
Gross profit | 1,549,186 | 1,501,533 | 1,615,532 | 1,351,551 | 270,045 | ||||||||||||||
Operating expenses: | |||||||||||||||||||
Marketing | 269,043 | 214,824 | 336,854 | 768,472 | 290,569 | ||||||||||||||
Selling, general and administrative | 1,293,716 | 1,210,966 | 1,179,080 | 821,002 | 196,637 | ||||||||||||||
Acquisition-related expense (benefit), net | 1,269 | (11 | ) | 897 | (4,537 | ) | 203,183 | ||||||||||||
Total operating expenses | 1,564,028 | 1,425,779 | 1,516,831 | 1,584,937 | 690,389 | ||||||||||||||
(Loss) income from operations | (14,842 | ) | 75,754 | 98,701 | (233,386 | ) | (420,344 | ) | |||||||||||
Other (expense) income, net | (33,353 | ) | (94,663 | ) | (3,759 | ) | (20,679 | ) | 284 | ||||||||||
(Loss) income before provision (benefit) for income taxes | (48,195 | ) | (18,909 | ) | 94,942 | (254,065 | ) | (420,060 | ) | ||||||||||
Provision (benefit) for income taxes | 15,724 | 70,037 | 145,973 | 43,697 | (6,674 | ) | |||||||||||||
Net loss | (63,919 | ) | (88,946 | ) | (51,031 | ) | (297,762 | ) | (413,386 | ) | |||||||||
Net (income) loss attributable to noncontrolling interests | (9,171 | ) | (6,447 | ) | (3,742 | ) | 18,335 | 23,746 | |||||||||||
Net loss attributable to Groupon, Inc. | (73,090 | ) | (95,393 | ) | (54,773 | ) | (279,427 | ) | (389,640 | ) | |||||||||
Dividends on preferred stock | — | — | — | — | (1,362 | ) | |||||||||||||
Redemption of preferred stock in excess of carrying value | — | — | — | (34,327 | ) | (52,893 | ) | ||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value | — | — | (12,604 | ) | (59,740 | ) | (12,425 | ) | |||||||||||
Net loss attributable to common stockholders | $ | (73,090 | ) | $ | (95,393 | ) | $ | (67,377 | ) | $ | (373,494 | ) | $ | (456,320 | ) | ||||
Net loss per share | |||||||||||||||||||
Basic | $ | (0.11 | ) | $ | (0.14 | ) | $ | (0.10 | ) | $ | (1.03 | ) | $ | (1.33 | ) | ||||
Diluted | $ | (0.11 | ) | $ | (0.14 | ) | $ | (0.10 | ) | $ | (1.03 | ) | $ | (1.33 | ) | ||||
Weighted average number of shares outstanding | |||||||||||||||||||
Basic | 674,832,393 | 663,910,194 | 650,214,119 | 362,261,324 | 342,698,772 | ||||||||||||||
Diluted | 674,832,393 | 663,910,194 | 650,214,119 | 362,261,324 | 342,698,772 | ||||||||||||||
30
As of December 31, | |||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
(in thousands) | |||||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||
Cash and cash equivalents | $ | 1,071,913 | $ | 1,240,472 | $ | 1,209,289 | $ | 1,122,935 | $ | 118,833 | |||||||||
Working capital (deficit) | 75,733 | 374,720 | 319,345 | 328,165 | (196,564 | ) | |||||||||||||
Total assets | 2,227,597 | 2,042,010 | 2,031,474 | 1,774,476 | 381,570 | ||||||||||||||
Total long-term liabilities | 137,057 | 142,550 | 120,932 | 78,194 | 1,621 | ||||||||||||||
Total Groupon, Inc. Stockholders' Equity | 762,826 | 713,651 | 744,040 | 702,541 | 8,077 | ||||||||||||||
31
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
Groupon operates online local commerce marketplaces throughout the world that connect 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 merchants to attract customers and sell goods and services. We provide consumers with savings and help them discover what to do, eat, see and buy and where to travel.
Current and potential customers are able to access our deal offerings directly through our websites, mobile platforms and emails and may also access our offerings indirectly using search engines. We offer deals in three primary categories: Local Deals ("Local"), Groupon Goods ("Goods") and Groupon Getaways ("Travel"). In our Goods category, through which we offer deals on merchandise, we often act as the merchant of record, particularly for deals in North America and for deals in EMEA, which is comprised of Europe, Middle East and Africa, beginning in September 2013. 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 merchants, excluding 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, excluding applicable taxes and net of estimated refunds. We generated revenue of $3,191.7 million during the year ended December 31, 2014, as compared to $2,573.7 million during the year ended December 31, 2013.
Our operations are organized into three segments: North America, EMEA and the remainder of our international operations ("Rest of World"). See Note 16 "Segment Information" for further information. For the year ended December 31, 2014, we derived 57.2% of our revenue from our North America segment, 30.1% of our revenue from our EMEA segment and 12.7% of our revenue from our Rest of World segment.
On January 2, 2014, we acquired all of the outstanding equity interests of LivingSocial Korea, Inc., including its subsidiary Ticket Monster Inc. ("Ticket Monster"), for total consideration of $259.4 million, consisting of $96.5 million in cash and $162.9 million of Class A common stock. Ticket Monster is an e-commerce company based in the Republic of Korea that connects merchants to consumers by offering goods and services at a discount. The operations of Ticket Monster are reported within our Rest of World segment for the year ended December 31, 2014. On January 13, 2014, we acquired all of the outstanding equity interests of Ideeli, Inc. (d/b/a "Ideel"), a fashion flash site based in the United States, for total consideration of $42.7 million. Ideel is focused on women's fashion apparel, accessories and home decor, and the operations of Ideel are reported within our North America segment for the year ended December 31, 2014.
We have hired advisers to help us explore a range of financing and strategic alternatives for Ticket Monster and certain other Asian markets. As part of that process, multiple parties have expressed preliminary interest in Ticket Monster. However, we cannot provide any assurance as to the pricing, timetable or structure of any transaction, or the likelihood of any transaction being completed.
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 marketplaces. Certain of the financial metrics are reported in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and certain of these metrics are considered non-GAAP financial measures. As our business evolves, we may make changes to our key financial and operating metrics used to measure our business in future periods. 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.
32
Financial Metrics
• | Gross billings. This metric represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. For third party revenue deals, gross billings differs from third party revenue reported in our consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For direct revenue deals, gross billings are equivalent to direct revenue reported in our consolidated statements of operations. We consider this metric to be an important indicator of our growth and business performance as it is a proxy for the dollar volume of transactions generated through our marketplaces. Tracking gross billings on third party revenue deals also allows us to track changes in the percentage of gross billings that we are able to retain after payments to our merchants. |
• | Revenue. Third party revenue is derived from deals where we act as the marketing agent and is the purchase price paid by the customer less an agreed upon portion of the purchase price paid to the featured merchant, excluding applicable taxes and net of estimated refunds for which the merchant's share is recoverable. Direct revenue, when the Company is selling the product as the merchant of record, is the purchase price paid by the customer, excluding applicable taxes and net of estimated refunds. |
• | Gross profit. Gross profit reflects the net margin earned after deducting our cost of revenue from our revenue. Due to the lack of comparability between third party revenue, which is presented net of the merchant's share of the transaction price, and direct revenue, which is reported on a gross basis, we believe that gross profit is an important measure for evaluating our performance. |
• | Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that comprises net income (loss) excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation and acquisition-related expense (benefit), net. We exclude stock-based compensation expense and depreciation and amortization because they are primarily non-cash in nature, and we believe that non-GAAP financial measures excluding these items provide meaningful supplemental information about our operating performance and liquidity. Acquisition-related expense (benefit), net is comprised of the change in the fair value of contingent consideration arrangements and external transaction costs related to business combinations, primarily consisting of legal and advisory fees. Our definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. We believe that Adjusted EBITDA is a meaningful measure for evaluating our operating performance. 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. |
• | Free cash flow. Free cash flow is a non-GAAP financial measure that comprises net cash (used in) provided by operating activities less purchases of property and equipment and capitalized software. We use free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe that it typically represents a more useful measure of cash flows because purchases of fixed assets, software developed for internal use and website development costs are necessary components of our ongoing operations. Free cash flow is not intended to represent the total increase or decrease in our cash balance for the applicable period. 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. |
The following table presents the above Financial Metrics for the years ended December 31, 2014, 2013 and 2012 (in thousands):
Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Gross billings | $ | 7,580,960 | $ | 5,757,330 | $ | 5,380,184 | ||||||
Revenue | 3,191,688 | 2,573,655 | 2,334,472 | |||||||||
Gross profit | 1,549,186 | 1,501,533 | 1,615,532 | |||||||||
Adjusted EBITDA | 253,367 | 286,654 | 259,516 | |||||||||
Free cash flow | 200,532 | 154,927 | 170,998 | |||||||||
33
Operating Metrics
• | Active customers. We define active customers as unique user accounts that have purchased a voucher or product from us during the trailing twelve months. We consider this metric to be an important indicator of our business performance as it helps us to understand how the number of customers actively purchasing our deals is trending. |
• | Gross billings per average active customer. This metric represents the trailing twelve months gross billings generated per average active customer. This metric is calculated as the total gross billings generated in the trailing twelve months, divided by the average number of active customers in such time period. Although we believe total gross billings, not trailing twelve months gross billings per average active customer, is a better indication of the overall growth of our marketplaces over time, trailing twelve months gross billings per average active customer provides an opportunity to evaluate whether our growth is primarily driven by growth in total customers or in spend per customer in any given period. |
• | Units. This metric represents the number of vouchers and products purchased from us by our customers, before refunds and cancellations. We consider unit growth to be an important indicator of the total volume of business conducted through our marketplaces. |
Our Active customers and Gross billings per average active customer for the trailing twelve months ("TTM") ended December 31, 2014, 2013 and 2012 were as follows:
Trailing twelve months ended December 31, | ||||||||||||
2014 | 2013(1) | 2012(2) | ||||||||||
TTM Active customers (in thousands) | 53,852 | 43,673 | 40,564 | |||||||||
TTM Gross billings per average active customer | $ | 155.47 | $ | 136.69 | $ | 144.84 | ||||||
(1) | TTM active customers for the period ended December 31, 2013 has been reduced from 44.9 million active customers previously reported to 43.7 million to correct that operational information. This correction increased TTM gross billings per average active customer for the period ended December 31, 2013 from $134.01 previously reported to $136.69. |
(2) | TTM active customers for the period ended December 31, 2012 has been reduced from 41.0 million active customers previously reported to 40.6 million to correct that operational information. This correction increased TTM gross billings per average active customer for the period ended December 31, 2012 from $143.88 previously reported to $144.84. |
The increase in active customers for the trailing twelve months ended December 31, 2014, as compared to the prior year periods, was primarily attributable to the acquisitions of Ticket Monster and Ideel.
Our Units for the years ended December 31, 2014, 2013 and 2012 were as follows:
Year Ended December 31, | |||||||||
2014 | 2013 | 2012 | |||||||
Units (in thousands) | 356,110 | 193,426 | 176,079 | ||||||
The increase in units for the year ended December 31, 2014, as compared to the prior year periods, was primarily attributable to the acquisitions of Ticket Monster and Ideel.
Factors Affecting Our Performance
Deal sourcing and quality. We consider our merchant relationships to be a vital part of our business model and have made significant investments in order to expand the variety of tools that we can provide to our merchants. We depend on our ability to attract and retain merchants that are prepared to offer products or services on compelling terms, particularly as we attempt to expand our product and service offerings in order to create more complete online marketplaces for local commerce. In North America and many of our foreign markets, we offer deals in which the merchant has a continuous presence on our websites and mobile applications by offering vouchers on an ongoing basis for an extended period of time. Currently, a substantial majority of our merchants in North America elect to offer deals in this manner, and we expect that trend to continue. These marketplaces, which we refer to as "pull" marketplaces, enable customers to search for specific types of deals on our websites and mobile applications. However, merchants have the ability to withdraw their extended deal offerings, and we generally do not have
34
noncancelable long-term arrangements to guarantee availability of deals. In order to attract merchants that may not have run deals on our platform or would have run deals on a competing platform, we have been willing to accept lower deal margins across all three of our segments and we expect that trend to continue. This has contributed to lower deal margins during the year ended December 31, 2014, as compared to the prior year periods. If new merchants do not find our marketing and promotional services effective, or if our existing merchants do not believe that utilizing our services provides them with a long-term increase in customers, revenue or profit, they may stop making offers through our marketplaces or they may only continue offering deals if we accept lower margins.
International operations. Our international operations represent a substantial portion of our business and have increased as a percentage of our total revenue in the current year. For the years ended December 31, 2014, 2013 and 2012, 30.1%, 28.9% and 34.5% of our revenue was generated from our EMEA segment, respectively, and 12.7%, 12.0% and 15.6% of our revenue was generated from our Rest of World segment, respectively. Operating a global business requires management attention and resources and requires us to localize our services to conform to a wide variety of local cultures, business practices, laws and regulations. The different commercial and regulatory environments in other countries may make it more difficult for us to successfully operate our business. In addition, many of the automation tools and technology enhancements that we have implemented in our North America segment are close to being fully implemented in most EMEA countries but have not been substantially rolled out to the countries in our Rest of World segment. Revenue from our EMEA segment increased for the year ended December 31, 2014, as compared to the prior year, and the percentage of total revenue generated by our EMEA segment increased on a year-over-year basis. Revenue from our Rest of World segment increased for the year ended December 31, 2014, as compared to the prior year. On a year-over-year basis, the percentage of total revenue generated by our Rest of World segment increased for the year ended December 31, 2014. Revenue from our North America segment increased for the year ended December 31, 2014, as compared to the prior year, and the percentage of total revenue generated by our North America segment decreased on a year-over-year basis. The decrease in North America revenue as a percentage of total revenue was primarily due to the increase in direct revenue transactions from our Groupon Goods business in EMEA, as direct revenue is presented on a gross basis in our consolidated statements of operations.
Marketing activities. We must continue to acquire and retain customers in order to increase revenue and attempt to achieve profitability. If consumers do not perceive our Groupon offerings to be attractive, or if we fail to introduce new or more relevant deals, we may not be able to acquire or retain customers. In addition, as we build-out more complete marketplaces, our success will depend on our ability to increase consumer awareness of deals available through those marketplaces. As discussed under "Components of Results of Operations," we consider order discounts, free shipping on qualifying merchandise sales and reducing margins on our deals to be marketing-related activities, even though these activities are not presented as marketing expenses in our consolidated statements of operations. We have, and expect to continue to, reduce our deal margins when we believe that by doing so we can offer our customers a product or service from a merchant who might not have otherwise been willing to conduct business through our marketplaces. We use this as a marketing tool because we believe that in some instances this is an effective method of retaining or activating a customer, as compared to other methods of retention or activation, such as traditional advertising or discounts.
Investment in growth. We have aggressively invested, and intend to continue to invest, in our products and infrastructure to support our growth. We also continue to invest in business acquisitions to grow our merchant and customer base, expand our presence in international markets, expand and advance our product offerings and enhance our technology capabilities. We anticipate that we will make substantial investments in the foreseeable future as we continue to increase the number and variety of deals we offer each day, broaden our customer base, expand our marketing channels, expand our operations, hire additional employees and develop our technology. Additionally, we believe that our efforts to automate our internal processes through investments in technology should allow us to improve our cost structure over time, as we are able to more efficiently run our business and minimize manual processes.
We recently launched a tablet-based platform for merchants that we believe will streamline the voucher redemption process. This tablet-based platform can also be used in connection with our credit card payment processing service. In addition, we have begun to add additional content about local merchants to our websites, including merchants who have not offered deals through our marketplace. This new content, which we refer to as "Pages," is intended to provide customers with the ability to discover more local businesses and deal offerings through our websites. While we believe that both of these initiatives will contribute to the future success of our business, we do not expect that they will generate a material amount of revenue in the near term.
Competitive pressure. We face competition from a variety of competitors. Some of our competitors offer deals as an add-on to their core business, and others have adopted a business model similar to ours. In addition to such competitors, we expect to increasingly compete against other large Internet and technology‑based businesses that have launched initiatives which are directly competitive to our core business, our other merchant offerings such as payment processing and point of sale, and other initiatives such as our tablet-based platform for merchants and Pages. We also expect to compete against other Internet sites that are focused
35
on specific communities or interests and offer coupons or discount arrangements related to such communities or interests. Further, as our business continues to evolve, we anticipate facing new competition. Increased competition in the future may adversely impact our gross billings, revenue and profit margins.
Growth of Groupon Goods. Our Groupon Goods category has experienced significant revenue growth in recent periods. This category has lower margins than our Local category, primarily as a result of shipping and fulfillment costs related to direct revenue transactions. The percentage of revenue generated from our Goods category was 55.8%, 44.2% and 33.1% for the years ended December 31, 2014, 2013 and 2012, respectively. We are generally the merchant of record for transactions in our Goods category in North America and also in EMEA beginning in September 2013, such that the resulting direct revenue is reported on a gross basis in our consolidated statements of operations. Growth in direct revenue results in a smaller increase to income and cash flows than growth in third party revenue because direct revenue includes the entire amount of gross billings, before deducting the cost of the related inventory, while third party revenue is net of the merchant’s share of the transaction price. Gross profit as a percentage of revenue on direct revenue transactions in our Goods category was 10.5%, 8.7% and 7.1% for the years ended December 31, 2014, 2013 and 2012, respectively. As direct revenue transactions in our Goods category have become a larger component of our overall business in recent periods, the significant revenue growth generated by those transactions has not resulted in comparable growth in gross profit, operating income (loss) or cash flows.
Components of Results of Operations
Third Party and Other Revenue
Third party revenue arises from transactions in which we are acting as a third party marketing agent and consists of the net amount we retain from the sale of Groupons after paying an agreed upon portion of the purchase price to the featured merchant, excluding applicable taxes and net of estimated refunds for which the merchant's share is recoverable. Other revenue primarily consists of advertising revenue, payment processing revenue, point of sale revenue and commission revenue.
Direct Revenue
Direct revenue arises from transactions, primarily in our Goods category, in which we are the merchant of record and consists of the gross amount we receive from the customer, excluding applicable taxes and net of estimated refunds.
Cost of Revenue
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. For direct revenue transactions, cost of revenue includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Fulfillment costs are 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.
Technology costs within cost of revenue include the payroll and stock‑based compensation expense related to the Company's technology support personnel who are responsible for operating and maintaining the infrastructure of the Company's websites and mobile applications. Technology costs within cost of revenue also include a portion of amortization expense from internal-use software, primarily related to website development. Other technology-related costs within cost of revenue include email distribution costs. Editorial costs included in cost of revenue consist of payroll and stock‑based compensation expense related to the Company's editorial personnel, as these staff members are primarily dedicated to drafting and promoting deals.
Marketing
Marketing expense consists primarily of targeted online marketing costs, such as sponsored search, advertising on social networking sites, email marketing campaigns, affiliate programs and, to a lesser extent, offline marketing costs such as television, radio and print advertising. Additionally, marketing payroll and stock‑based compensation expense are classified as marketing expense. We record these costs within "Marketing" on the consolidated statements of operations when incurred. From time to time, we offer deals with well-known national merchants for subscriber acquisition and customer activation purposes, for which the amount we owe the merchant for each voucher sold exceeds the transaction price paid by the customer. Our gross billings from those transactions generate no third party revenue and our net cost (i.e., the excess of the amount owed to the merchant over the amount paid by the customer) is classified as marketing expense. Our marketing activities also include elements that are not
36
presented as "Marketing" on our consolidated statements of operations, such as order discounts, free shipping on qualifying merchandise sales and accepting lower margins on our deals. Marketing is the primary method by which we acquire customers and promote awareness and, as such, is a critical part of our growth strategy.
Selling, General and Administrative
Selling expenses reported within "Selling, general and administrative" on the consolidated statements of operations consist of payroll, stock-based compensation expense and sales commissions for sales representatives, as well as costs associated with supporting the sales function such as technology, telecommunications and travel. General and administrative expenses include payroll and stock-based compensation expense for employees involved in general corporate functions, such as accounting, finance, tax, legal and human resources, as well as customer service, operations and technology and product development personnel. Additional costs included in general and administrative include depreciation and amortization, rent, professional fees, litigation costs, travel and entertainment, recruiting, office supplies, maintenance, certain technology costs and other general corporate costs.
Acquisition‑Related Expense (Benefit), Net
Acquisition-related expense (benefit) , net includes the change in the fair value of contingent consideration arrangements related to business combinations. See Note 14 "Fair Value Measurements." For the years ended December 31, 2014 and 2013, acquisition-related expense (benefit), net also includes external transaction costs related to business combinations, primarily consisting of legal and advisory fees. Such costs were not material for the year ended December 31, 2012.
Other Expense, Net
Other expense, net includes interest income on our cash and cash equivalents, interest expense on capital leases and the revolving credit agreement, impairments of investments, gains and losses on equity method investments and foreign currency transaction gains and losses, primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies.
37
Results of Operations
Comparison of the Years Ended December 31, 2014 and 2013:
Year Ended December 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Revenue: | ||||||||
Third party and other | $ | 1,627,539 | $ | 1,654,654 | ||||
Direct | 1,564,149 | 919,001 | ||||||
Total revenue | 3,191,688 | 2,573,655 | ||||||
Cost of revenue: | ||||||||
Third party and other | 241,885 | 232,062 | ||||||
Direct | 1,400,617 | 840,060 | ||||||
Total cost of revenue | 1,642,502 | 1,072,122 | ||||||
Gross profit | 1,549,186 | 1,501,533 | ||||||
Operating expenses: | ||||||||
Marketing | 269,043 | 214,824 | ||||||
Selling, general and administrative | 1,293,716 | 1,210,966 | ||||||
Acquisition-related expense (benefit), net | 1,269 | (11 | ) | |||||
Total operating expenses | 1,564,028 | 1,425,779 | ||||||
(Loss) income from operations | (14,842 | ) | 75,754 | |||||
Other expense, net | (33,353 | ) | (94,663 | ) | ||||
Loss before provision for income taxes | (48,195 | ) | (18,909 | ) | ||||
Provision for income taxes | 15,724 | 70,037 | ||||||
Net loss | (63,919 | ) | (88,946 | ) | ||||
Net income attributable to noncontrolling interests | (9,171 | ) | (6,447 | ) | ||||
Net loss attributable to Groupon, Inc. | $ | (73,090 | ) | $ | (95,393 | ) | ||
38
Classification of stock-based compensation within cost of revenue and operating expenses
Cost of revenue and operating expenses include stock-based compensation as follows:
Year Ended December 31, | ||||||||||||||||
2014 | 2013 | |||||||||||||||
Statement of Operations line item | Stock-based compensation included in line item | Statement of Operations line item | Stock-based compensation included in line item | |||||||||||||
(in thousands) | ||||||||||||||||
Total cost of revenue | $ | 1,642,502 | $ | 3,611 | $ | 1,072,122 | $ | 1,982 | ||||||||
Operating expenses: | ||||||||||||||||
Marketing | $ | 269,043 | $ | 9,733 | $ | 214,824 | $ | 9,677 | ||||||||
Selling, general and administrative | 1,293,716 | 108,675 | 1,210,966 | 109,803 | ||||||||||||
Acquisition-related expense (benefit), net | 1,269 | — | (11 | ) | — | |||||||||||
Total operating expenses | $ | 1,564,028 | $ | 118,408 | $ | 1,425,779 | $ | 119,480 | ||||||||
Foreign exchange rate neutral operating results
The effect on our gross billings, revenue, cost of revenue and operating expenses, and (loss) income from operations for the year ended December 31, 2014 from changes in exchange rates versus the U.S. dollar was as follows:
Year Ended December 31, 2014 | ||||||||||||
At Avg. | Exchange | |||||||||||
2013 | Rate Effect | As | ||||||||||
Rates (1) | Effect (2) | Reported | ||||||||||
(in thousands) | ||||||||||||
Gross billings | $ | 7,620,860 | $ | (39,900 | ) | $ | 7,580,960 | |||||
Revenue | $ | 3,217,762 | $ | (26,074 | ) | $ | 3,191,688 | |||||
Cost of revenue and operating expenses | 3,233,993 | (27,463 | ) | 3,206,530 | ||||||||
(Loss) income from operations | $ | (16,231 | ) | $ | 1,389 | $ | (14,842 | ) | ||||
(1) | Represents the financial statement balances that would have resulted had exchange rates in the reporting period been the same as those in effect in the prior year period. |
(2) | Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the prior year period. |
Gross Billings
Gross billings represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Gross billings for the years ended December 31, 2014 and 2013 were as follows:
Year Ended December 31, | |||||||
2014 | 2013 | ||||||
(in thousands) | |||||||
Gross billings: | |||||||
Third party | $ | 5,989,584 | $ | 4,824,659 | |||
Direct | 1,564,149 | 919,001 | |||||
Other | 27,227 | 13,670 | |||||
Total gross billings | $ | 7,580,960 | $ | 5,757,330 | |||
For third party revenue deals, gross billings differs from third party revenue reported in our consolidated statements of operations, which is presented net of the merchant's share of the transaction price. For direct revenue deals and other revenue,
39
gross billings are equivalent to direct revenue and other revenue reported in our consolidated statements of operations. Gross billings increased by $1,823.6 million to $7,581.0 million for the year ended December 31, 2014, as compared to $5,757.3 million for the year ended December 31, 2013, primarily due to the acquisition of Ticket Monster which contributed $1,343.1 million in gross billings for the year ended December 31, 2014. The overall increase was comprised of a $1,164.9 million increase in gross billings from third party revenue transactions and a $645.1 million increase in gross billings from direct revenue transactions. The increase in gross billings was driven by an increase in active customers and the volume of transactions, resulting from the Ticket Monster acquisition and our global efforts to build our marketplaces and increase our offerings to customers. The unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $39.9 million.
We offer goods and services through three primary categories: Local, Goods and Travel within our North America, EMEA and Rest of World segments. We also earn advertising revenue, payment processing revenue, point of sale revenue and commission revenue. Gross billings, revenue, cost of revenue and gross profit from these other sources were previously considered to be distinct from our primary categories and were aggregated with gross billings, revenue, cost of revenue and gross profit from Travel, our smallest category. In recent periods, these other revenue sources have been increasingly viewed by management as a component of the Local category, as they are primarily generated through our relationships with local and national merchants. Accordingly, we updated our presentation of category information, effective beginning with the quarter ended March 31, 2014, to include other gross billings, revenue, cost of revenue and gross profit within the Local category in the tables below, and the prior year category information has been retrospectively adjusted to conform to the current year presentation. The increase in our gross billings was comprised of a $1,235.1 million increase in our Goods category, a $296.5 million increase in our Local category and a $292.0 million increase in our Travel category.
Gross Billings by Segment
Gross billings by segment for the years ended December 31, 2014 and 2013 were as follows:
Year Ended December 31, | ||||||||||||||
2014 | % of total | 2013 | % of total | |||||||||||
(dollars in thousands) | ||||||||||||||
Gross billings: | ||||||||||||||
North America | $ | 3,303,479 | 43.6 | % | $ | 2,847,244 | 49.5 | % | ||||||
EMEA | 2,046,807 | 27.0 | 1,983,599 | 34.5 | ||||||||||
Rest of World | 2,230,674 | 29.4 | 926,487 | 16.0 | ||||||||||
Total gross billings | $ | 7,580,960 | 100.0 | % | $ | 5,757,330 | 100.0 | % | ||||||
40
Gross billings by category and segment for the years ended December 31, 2014 and 2013 were as follows (in thousands):
North America | EMEA | Rest of World | Consolidated | ||||||||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
Local (1): | |||||||||||||||||||||||||||||||
Third party and other(2) | $ | 1,864,141 | $ | 1,747,143 | $ | 950,141 | $ | 987,428 | $ | 689,560 | $ | 471,017 | $ | 3,503,842 | $ | 3,205,588 | |||||||||||||||
Direct | — | 1,772 | — | — | — | — | — | 1,772 | |||||||||||||||||||||||
Total | 1,864,141 | 1,748,915 | 950,141 | 987,428 | 689,560 | 471,017 | 3,503,842 | 3,207,360 | |||||||||||||||||||||||
Goods: | |||||||||||||||||||||||||||||||
Third party | 27,527 | 68,818 | 368,344 | 590,635 | 1,143,064 | 291,270 | 1,538,935 | 950,723 | |||||||||||||||||||||||
Direct | 1,074,913 | 774,023 | 442,344 | 115,881 | 46,892 | 27,325 | 1,564,149 | 917,229 | |||||||||||||||||||||||
Total | 1,102,440 | 842,841 | 810,688 | 706,516 | 1,189,956 | 318,595 | 3,103,084 | 1,867,952 | |||||||||||||||||||||||
Travel: | |||||||||||||||||||||||||||||||
Third party(2) | 336,898 | 255,488 | 285,978 | 289,655 | 351,158 | 136,875 | 974,034 | 682,018 | |||||||||||||||||||||||
Total gross billings | $ | 3,303,479 | $ | 2,847,244 | $ | 2,046,807 | $ | 1,983,599 | $ | 2,230,674 | $ | 926,487 | $ | 7,580,960 | $ | 5,757,330 | |||||||||||||||
(1) | Includes gross billings from deals with local merchants, from deals with national merchants, and through local events. |
(2) | During the three months ended March 31, 2014, the Company began classifying other gross billings as a component of the Local category. Other gross billings were previously aggregated with the Travel category. The prior year category information has been retrospectively adjusted to conform to the current year presentation. |
North America
North America segment gross billings increased by $456.2 million to $3,303.5 million for the year ended December 31, 2014, as compared to $2,847.2 million for the year ended December 31, 2013. The increase in gross billings was comprised of a $259.6 million increase in our Goods category, which included $82.4 million of gross billings from our Ideel acquisition. The increase in gross billings also includes a $115.2 million increase in our Local category and an $81.4 million increase in our Travel category. The increase in gross billings in the North America segment resulted from an increase in active customers, partially offset by lower gross billings per average active customer. We believe that increases in transaction activity by active customers who make purchases on mobile devices and in the number of deals that we offered contributed to the growth in gross billings for our North America segment. In addition, we have continued to refine our approach to targeting customers and have undertaken marketing initiatives to increase consumer awareness of deals available through our marketplaces, which we believe contributed to the gross billings growth. These marketing activities include order discounts, which are reported as a reduction of gross billings. Order discounts increased to $69.5 million for the year ended December 31, 2014, as compared to $21.2 million in the prior year.
Historically, our customers often purchased a Groupon voucher when they received our email with a limited-time offer, even though they may not have intended to use the voucher in the near term. The growth in recent periods of our marketplaces of deals has enabled customers to wait until they are ready to use the related vouchers before making purchases. We believe that this shift in purchasing behavior adversely impacted gross billings in recent periods. However, we believe that the potential impact of these changes in the timing of customer purchases on our gross billings growth has become less significant because the prior year includes some of the effects of those purchasing trends.
EMEA
EMEA segment gross billings increased by $63.2 million to $2,046.8 million for the year ended December 31, 2014, as compared to $1,983.6 million for the year ended December 31, 2013. The increase in gross billings was comprised of a $104.2 million increase in our Goods category, resulting from increased unit sales in this category for the year ended December 31, 2014, as compared to the prior year. The increase in gross billings in the EMEA segment also resulted from an increase in active customers for the year ended December 31, 2014, as compared to the prior year. The increase in Goods gross billings was partially offset by a $37.3 million decrease in our Local category and a $3.7 million decrease in our Travel category. The unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $7.5 million.
41
Rest of World
Rest of World segment gross billings increased by $1,304.2 million to $2,230.7 million for the year ended December 31, 2014, as compared to $926.5 million for the year ended December 31, 2013. The increase in gross billings was attributable to our acquisition of Ticket Monster, which contributed $1,343.1 million in gross billings for the year ended December 31, 2014, and also generated increased unit sales and an increase in active customers for the year ended December 31, 2014, as compared to the prior year. The increase in gross billings was comprised of an $871.4 million increase in our Goods category, a $218.5 million increase in our Local category and a $214.3 million increase in our Travel category. The unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $29.5 million.
On a pro forma basis, the combined gross billings of our Rest of World segment, as if the Company had acquired Ticket Monster as of January 1, 2013, were $1,809.9 million for the year ended December 31, 2013. This pro forma gross billings amount is not necessarily indicative of what the actual results of the combined company would have been if the acquisition had occurred as of January 1, 2013, nor is it indicative of future results.
Revenue
Revenue for the years ended December 31, 2014 and 2013 was as follows:
Year Ended December 31, | |||||||
2014 | 2013 | ||||||
(in thousands) | |||||||
Revenue: | |||||||
Third party | $ | 1,600,312 | $ | 1,640,984 | |||
Direct | 1,564,149 | 919,001 | |||||
Other | 27,227 | 13,670 | |||||
Total revenue | $ | 3,191,688 | $ | 2,573,655 | |||
Revenue increased by $618.0 million to $3,191.7 million for the year ended December 31, 2014, as compared to $2,573.7 million for the year ended December 31, 2013. This increase was attributable to the $646.9 million increase in direct revenue from transactions in our Goods category. The increase in revenue was partially offset by a $40.7 million decrease in third party revenue. The net increase in revenue was attributable to increased unit sales and an increase in active customers for the year ended December 31, 2014, as compared to the prior year. We also increased the number of merchant relationships and the volume of deals we offer to our customers. Our acquisitions of Ticket Monster and Ideel contributed $149.6 million and $82.4 million of revenue, respectively, for the year ended December 31, 2014. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $26.1 million.
Third Party Revenue
Third party revenue decreased by $40.7 million to $1,600.3 million for the year ended December 31, 2014, as compared to $1,641.0 million for the year ended December 31, 2013. The decrease in third party revenue is primarily due to a $64.1 million decrease in our Local category. Although third party gross billings in our Local category increased $284.7 million, the percentage of gross billings that we retained after deducting the merchant's share decreased to 34.7% for the year ended December 31, 2014, as compared to 39.8% for the year ended December 31, 2013. The decrease in third party revenue in the current year was also due to a $3.3 million decrease in our Goods category, which resulted from a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 14.1% for the year ended December 31, 2014, as compared to 23.1% for the year ended December 31, 2013. The decrease in third party revenue was partially offset by a $26.7 million increase in our Travel category, which resulted from a $292.0 million increase in gross billings, partially offset by a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 18.2% for the year ended December 31, 2014, as compared to 22.1% for the year ended December 31, 2013. Our acquisition of Ticket Monster contributed $125.2 million of third party revenue for the year ended December 31, 2014. The decrease in the percentage of gross billings that we retained after deducting the merchant's share primarily reflects the impact of Ticket Monster's lower deal margins.
42
Direct Revenue
Direct revenue increased by $645.1 million to $1,564.1 million for the year ended December 31, 2014, as compared to $919.0 million for the year ended December 31, 2013. Direct revenue for the year ended December 31, 2014 includes $82.4 million from our Ideel acquisition. We are generally the merchant of record for transactions in our Goods category in North America and also in EMEA beginning in September 2013, such that the resulting revenue is reported on a gross basis within direct revenue. Growth in direct revenue will result in a smaller increase in income from operations than growth in third party revenue because direct revenue includes the entire amount of gross billings, before deducting the cost of the related inventory, while third party revenue is net of the merchant's share of the transaction price. Additionally, our Goods category has lower margins than our Local category, primarily as a result of shipping and fulfillment costs related to direct revenue transactions.
We believe that direct revenue deals in our Goods category will increase in the future in the EMEA and Rest of World segments as we continue to build out our global supply chain infrastructure.
Other Revenue
Other revenue increased by $13.6 million to $27.2 million for the year ended December 31, 2014, as compared to $13.7 million for the year ended December 31, 2013, primarily due to increases in payment processing revenue, advertising revenue and commission revenue. Other revenue also includes point of sale revenue. Those other revenue sources were not individually significant for the years ended December 31, 2014 and 2013, and we do not expect them to be material in the near term.
Revenue by Segment
Revenue by segment for the years ended December 31, 2014 and 2013 was as follows:
Year Ended December 31, | ||||||||||||||
2014 | % of total | 2013 | % of total | |||||||||||
(dollars in thousands) | ||||||||||||||
North America: | ||||||||||||||
Third party and other | $ | 749,548 | 23.5 | % | $ | 745,563 | 29.0 | % | ||||||
Direct | 1,074,913 | 33.7 | 775,795 | 30.1 | ||||||||||
Total segment revenue | 1,824,461 | 57.2 | 1,521,358 | 59.1 | ||||||||||
EMEA: | ||||||||||||||
Third party | 518,786 | 16.3 | 627,034 | 24.4 | ||||||||||
Direct | 442,344 | 13.8 | 115,881 | 4.5 | ||||||||||
Total segment revenue | 961,130 | 30.1 | 742,915 | 28.9 | ||||||||||
Rest of World: | ||||||||||||||
Third party | 359,205 | 11.3 | 282,057 | 11.0 | ||||||||||
Direct | 46,892 | 1.4 | 27,325 | 1.0 | ||||||||||
Total segment revenue | 406,097 | 12.7 | 309,382 | 12.0 | ||||||||||
Total revenue | $ | 3,191,688 | 100.0 | % | $ | 2,573,655 | 100.0 | % | ||||||
43
Revenue by category and segment for the years ended December 31, 2014 and 2013 was as follows (in thousands):
North America | EMEA | Rest of World | Consolidated | ||||||||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
Local (1): | |||||||||||||||||||||||||||||||
Third party and other(2) | $ | 674,605 | $ | 671,846 | $ | 391,179 | $ | 430,020 | $ | 167,552 | $ | 182,010 | $ | 1,233,336 | $ | 1,283,876 | |||||||||||||||
Direct revenue | — | 1,772 | — | — | — | — | — | 1,772 | |||||||||||||||||||||||
Total | 674,605 | 673,618 | 391,179 | 430,020 | 167,552 | 182,010 | 1,233,336 | 1,285,648 | |||||||||||||||||||||||
Goods: | |||||||||||||||||||||||||||||||
Third party | 5,966 | 17,409 | 63,650 | 133,117 | 146,984 | 69,344 | 216,600 | 219,870 | |||||||||||||||||||||||
Direct revenue | 1,074,913 | 774,023 | 442,344 | 115,881 | 46,892 | 27,325 | 1,564,149 | 917,229 | |||||||||||||||||||||||
Total | 1,080,879 | 791,432 | 505,994 | 248,998 | 193,876 | 96,669 | 1,780,749 | 1,137,099 | |||||||||||||||||||||||
Travel: | |||||||||||||||||||||||||||||||
Third party(2) | 68,977 | 56,308 | 63,957 | 63,897 | 44,669 | 30,703 | 177,603 | 150,908 | |||||||||||||||||||||||
Total revenue | $ | 1,824,461 | $ | 1,521,358 | $ | 961,130 | $ | 742,915 | $ | 406,097 | $ | 309,382 | $ | 3,191,688 | $ | 2,573,655 | |||||||||||||||
(1) | Includes revenue from deals with local and national merchants and through local events. |
(2) | During the three months ended March 31, 2014, the Company began classifying other revenue as a component of the Local category. Other revenue was previously aggregated with the Travel category. The prior year category information has been retrospectively adjusted to conform to the current year presentation. |
North America
North America segment revenue increased by $303.1 million to $1,824.5 million for the year ended December 31, 2014, as compared to $1,521.4 million for the year ended December 31, 2013. The increase in revenue primarily resulted from a $300.9 million increase in direct revenue from our Goods category, which includes $82.4 million of direct revenue from Ideel, which we acquired in January 2014. Direct revenue, which is recorded on a gross basis, is derived primarily from selling products through our Goods category where we are the merchant of record. Revenue in our Travel category also increased by $12.7 million, which resulted from an $81.4 million increase in gross billings, partially offset by a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 20.5% for the year ended December 31, 2014, as compared to 22.0% for the year ended December 31, 2013. Third party and other revenue in our Local category increased $2.8 million, which resulted from a $117.0 million increase in gross billings, partially offset by a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 36.2% for the year ended December 31, 2014, as compared to 38.5% for the year ended December 31, 2013. These decreases in the percentage of gross billings that we retained after deducting the merchant's share reflects the overall results of individual deal-by-deal negotiations with merchants and can vary significantly from period-to-period. We have been willing to accept lower deal margins in order to improve the quality and increase the number of deals offered to customers by offering more attractive terms to merchants. The overall increase in revenue in our North America segment was also due to an increase in active customers, partially offset by lower gross billings per average active customer.
We believe that increases in transaction activity on mobile devices and in the number of deals that we offered contributed to the growth in revenue for our North America segment. In addition, we have continued to refine our approach to targeting customers and have undertaken marketing initiatives to increase consumer awareness of deals available through our marketplaces, which we believe contributed to the revenue growth. These marketing related activities include order discounts, which are reported as a reduction of revenue. Order discounts increased to $69.5 million for the year ended December 31, 2014, as compared to $21.2 million in the prior year.
EMEA
EMEA segment revenue increased by $218.2 million to $961.1 million for the year ended December 31, 2014, as compared to $742.9 million for the year ended December 31, 2013. The increase in revenue primarily resulted from a $326.5 million increase in direct revenue from our Goods category. Revenue from transactions in the Goods category in our EMEA segment was primarily
44
presented on a net basis within third party revenue for much of the prior year, as we were not typically the merchant of record for those transactions outside of the United States. However, we began increasing the number of product deals offered in our EMEA segment for which we are the merchant of record beginning in September 2013. As a result, the proportion of direct revenue deals in the Goods category of our EMEA segment increased for the year ended December 31, 2014 as compared to the prior year. We expect that the proportion of direct revenue deals in the Goods category of our EMEA segment will continue to increase in future periods.
The increase in direct revenue in our Goods category was partially offset by a $69.5 million decrease in third party revenue in our Goods category, which resulted from a $222.3 million decrease in gross billings, due to the shift to more direct revenue transactions as described above, and a decrease in the percentage of gross billings that we retained after deducting the merchant's share to 17.3% for the year ended December 31, 2014, as compared to 22.5% for the year ended December 31, 2013. The increase in revenue from our Goods category was partially offset by a $38.8 million decrease in third party and other revenue from our Local category, which primarily resulted from a decrease in the percentage of third party and other gross billings that we retained after deducting the merchant's share to 41.2% for the year ended December 31, 2014, as compared to 43.5% for the year ended December 31, 2013. These decreases in the percentage of third party and other gross billings that we retained during the year ended December 31, 2014 reflect the overall results of individual deal-by-deal negotiations with our merchants and can vary significantly from period-to-period. We have been willing to accept lower deal margins, as compared to the prior year period, in order to improve the quality and increase the number of deals offered to our customers by offering more attractive terms to merchants.
The overall increase in revenue in our EMEA segment was also due to increased unit sales and an increase in active customers for the year ended December 31, 2014, as compared to the prior year. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $4.4 million.
Rest of World
Rest of World segment revenue increased by $96.7 million to $406.1 million for the year ended December 31, 2014, as compared to $309.4 million for the year ended December 31, 2013. The increase in revenue was attributable to our acquisition of Ticket Monster, which contributed $149.6 million in revenue for the year ended December 31, 2014, partially offset by a $52.9 million decrease in revenue for the remainder of our Rest of World segment. Revenue from our Goods category increased by $97.2 million for the year ended December 31, 2014, as compared to the prior year, due to a $77.6 million increase in third party revenue, which resulted from an $851.8 million increase in gross billings, partially offset by a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 12.9% for the year ended December 31, 2014, as compared to 23.8% in the prior year. The increase in third party revenue from our Goods category was attributable to the Ticket Monster acquisition, and the decrease in the percentage of gross billings that we retained after deducting the merchant's share primarily reflects the impact of Ticket Monster's lower deal margins. In our Rest of World segment, revenue from transactions in our Goods category are primarily presented on a net basis within third party revenue, as we have not typically been the merchant of record for those transactions outside of the United States and EMEA. The $52.9 million decrease in revenue for our Rest of World segment, excluding Ticket Monster, was driven by a decrease in active customers, the unfavorable impact of year-over-year changes in foreign exchange rates and the curtailment of our legacy Korean operations as a result of the Ticket Monster acquisition, partially offset by an increase in gross billings per average active customer and increased unit sales for the year ended December 31, 2014, as compared to the prior year.
The increase in revenue from our Rest of World segment included a $14.0 million increase in revenue from our Travel category, which resulted from a $214.3 million increase in gross billings, partially offset by a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 12.7% for the year ended December 31, 2014, as compared to 22.4% for the year ended December 31, 2013. Although gross billings on third party and other revenue transactions in our Local category increased by $218.5 million, third party and other revenue in our Local category decreased by $14.5 million, which resulted from a reduction in the percentage of third party and other gross billings that we retained after deducting the merchant's share to 24.3% for the year ended December 31, 2014, as compared to 38.6% for the year ended December 31, 2013. These decreases in the percentage of gross billings that we retained after deducting the merchant's share primarily reflects the impact of Ticket Monster's lower deal margins. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates for the year ended December 31, 2014 was $20.8 million.
45
Cost of Revenue
Cost of revenue on third party, direct revenue and other deals for the years ended December 31, 2014 and 2013 was as follows:
Year Ended December 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Cost of revenue: | ||||||||
Third party | $ | 225,752 | $ | 224,840 | ||||
Direct | 1,400,617 | 840,060 | ||||||
Other | 16,133 | 7,222 | ||||||
Total cost of revenue | $ | 1,642,502 | $ | 1,072,122 | ||||
Cost of revenue is comprised of direct and certain indirect costs incurred to generate revenue. For direct revenue deals, cost of revenue includes the cost of inventory, shipping and fulfillment costs and inventory markdowns. Fulfillment costs are 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, 2014, 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, 2014.
Cost of revenue increased by $570.4 million to $1,642.5 million for the year ended December 31, 2014, as compared to $1,072.1 million for the year ended December 31, 2013, 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 a majority of our global inventory fulfillment activities to third party logistics providers. We expect to reduce our usage of those third parties in future periods by transitioning additional inventory fulfillment work to internal resources. For example, we launched a fulfillment center in the United States during the fourth quarter of 2013. Additionally, to further reduce the involvement of third party logistics providers, we have increased our use of arrangements in which the suppliers of our product offerings ship merchandise directly to our customers. We are also refining our inventory management practices to better allocate inventories among warehouses in different geographic regions to reduce shipping distances to customers and increase units per transaction. We believe that these initiatives will ultimately reduce our fulfillment costs and improve the margins on direct revenue transactions in our Goods category. However, we may incur increased fulfillment costs from time to time as we enhance our internal processes and continue to transition fulfillment work from third party logistics providers.
46
Cost of Revenue by Segment
Cost of revenue by segment for the years ended December 31, 2014 and 2013 was as follows:
Year Ended December 31, | ||||||||||||||
2014 | % of total | 2013 | % of total | |||||||||||
(dollars in thousands) | ||||||||||||||
North America: | ||||||||||||||
Third party and other | $ | 106,375 | 6.5 | % | $ | 98,697 | 9.2 | % | ||||||
Direct | 986,103 | 60.0 | 709,824 | 66.2 | ||||||||||
Total segment cost of revenue | 1,092,478 | 66.5 | 808,521 | 75.4 | ||||||||||
EMEA: | ||||||||||||||
Third party | 39,578 | 2.4 | 70,102 | 6.5 | ||||||||||
Direct | 364,638 | 22.2 | 102,687 | 9.6 | ||||||||||
Total segment cost of revenue | 404,216 | 24.6 | 172,789 | 16.1 | ||||||||||
Rest of World: | ||||||||||||||
Third party | 95,932 | 5.8 | 63,263 | 5.9 | ||||||||||
Direct | 49,876 | 3.1 | 27,549 | 2.6 | ||||||||||
Total segment cost of revenue | 145,808 | 8.9 | 90,812 | 8.5 | ||||||||||
Total cost of revenue | $ | 1,642,502 | 100.0 | % | $ | 1,072,122 | 100.0 | % | ||||||
Cost of revenue by category and segment for the years ended December 31, 2014 and 2013 was as follows (in thousands):
North America | EMEA | Rest of World | Consolidated | ||||||||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
Local (1): | |||||||||||||||||||||||||||||||
Third party and other(2) | $ | 93,538 | $ | 89,123 | $ | 26,634 | $ | 46,295 | $ | 29,025 | $ | 28,604 | $ | 149,197 | $ | 164,022 | |||||||||||||||
Direct | — | 2,554 | — | — | — | — | — | 2,554 | |||||||||||||||||||||||
Total | 93,538 | 91,677 | 26,634 | 46,295 | 29,025 | 28,604 | 149,197 | 166,576 | |||||||||||||||||||||||
Goods: | |||||||||||||||||||||||||||||||
Third party | 854 | 2,090 | 8,216 | 16,760 | 55,498 | 29,645 | 64,568 | 48,495 | |||||||||||||||||||||||
Direct | 986,103 | 707,270 | 364,638 | 102,687 | 49,876 | 27,549 | 1,400,617 | 837,506 | |||||||||||||||||||||||
Total | 986,957 | 709,360 | 372,854 | 119,447 | 105,374 | 57,194 | 1,465,185 | 886,001 | |||||||||||||||||||||||
Travel: | |||||||||||||||||||||||||||||||
Third party(2) | 11,983 | 7,484 | 4,728 | 7,047 | 11,409 | 5,014 | 28,120 | 19,545 | |||||||||||||||||||||||