Groupon, Inc.
Groupon, Inc. (Form: 10-K, Received: 02/12/2016 06:19:08)
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, 2015
 
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, 2015, the aggregate market value of shares held by non-affiliates of the registrant was $2,418,665,812 based on the number of shares of class A common stock held by non-affiliates as of June 30, 2015 and based on the last reported sale price of the registrant's class A common stock on June 30, 2015.

As of February 9, 2016, there were 584,490,448 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 2016 , 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.



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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

______________________________________________________




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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, as amended, 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, but are not limited to, volatility in our revenue and operating results; risks related to our business strategy, including our strategy to grow our local marketplaces, marketing strategy and spend and the productivity of those marketing investments and the impact of our shift away from lower margin products in our Goods category; effectively dealing with challenges arising from our international operations, including fluctuations in currency exchange rates; retaining existing customers and adding new customers, including as we increase our marketing spend and shift away from lower margin products in our Goods category; retaining and adding high quality merchants; cyber security breaches; incurring expenses as we expand our business; competing successfully in our industry; maintaining favorable payment terms with our business partners; providing a strong mobile experience for our customers; delivery and routing of our emails; product liability claims; managing inventory and order fulfillment risks; integrating our technology platforms; litigation; managing refund risks; retaining, attracting and integrating members of our executive team; difficulties, delays or our inability to successfully complete all or part of the announced restructuring actions or to realize the operating efficiencies and other benefits of such restructuring actions; higher than anticipated restructuring charges or changes in the timing of such restructuring charges; completing and realizing the anticipated benefits from acquisitions, dispositions, joint ventures and strategic investments; tax liabilities; tax legislation; compliance with domestic and foreign laws and regulations, including the CARD Act and regulation of the Internet and e-commerce; classification of our independent contractors; maintaining our information technology infrastructure; protecting our intellectual property; maintaining a strong brand; seasonality; customer and merchant fraud; payment-related risks; our ability to raise capital if necessary and our outstanding indebtedness; global economic uncertainty; the impact of our ongoing strategic review and any potential strategic alternatives we may choose to pursue; and those risks and other factors 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 consumers 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 provide consumers with savings and help them discover what to do, eat, see, buy and where to travel in 28 countries.
Groupon operates online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services, generally at a discount. Consumers access those marketplaces through our websites, primarily localized groupon.com sites in many countries, and our mobile applications. Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including online advertising, paid telephone directories, direct mail,


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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.
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 goods and services in three primary categories: Local Deals ("Local"), Groupon Goods ("Goods") and Groupon Getaways ("Travel"). We act as a marketing agent by selling vouchers ("Groupons") that can be redeemed for products or services with third party merchants. We also sell merchandise inventory directly to customers.
Our results from 2015 include the following:
Gross billings increased to $6.3 billion in 2015 , as compared to $6.2 billion in 2014 . In 2015 , 59.3% , 28.7% and 12.0% of our gross billings were generated in North America, EMEA and Rest of World, respectively, as compared to 53.0% , 32.8% and 14.2% in 2014 . 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 inventory directly to customers.
Revenue increased to $3.1 billion in 2015 , as compared to $3.0 billion in 2014 . In 2015 , 65.6% , 27.8% and 6.6% of our revenue was generated in North America, EMEA and Rest of World, respectively, as compared to 60.0% , 31.6% and 8.4% in 2014 .
Gross profit decreased to $1.4 billion in 2015 , as compared to $1.5 billion in 2014 .
Loss from operations was $79.8 million in 2015 , as compared to income from operations of $30.7 million in 2014 .
We recognized a $202.2 million pre-tax gain ( $154.1 million net of tax) from the sale of a controlling stake in our Korean subsidiary Ticket Monster, Inc. ("Ticket Monster") on May 27, 2015. The financial results of Ticket Monster and gain on disposition, net of tax, are reported as discontinued operations in the accompanying consolidated financial statements.
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 48.9 million as o f December 31, 2015 from 47.4 million as of December 31, 2014 .
As of December 31, 2015 , we had approximately 650,000 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 goal is to build marketplaces that our customers rely on to discover and save on amazing things to eat, see, do, buy and where to travel. Key elements of our strategy include the following:
Narrowing our focus and improving our operating efficiency . We have undertaken a number of actions to simplify and streamline our global business. In May and August 2015, we disposed of controlling stakes in our operations in Korea and India,


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respectively. In September 2015, our Board of Directors approved a restructuring plan primarily related to workforce reductions in our international operations that is expected to be substantially complete by September 2016. In addition to the workforce reductions in our ongoing markets, we ceased operations in six countries within our Rest of World segment and seven countries within our EMEA segment during 2015 in connection with the restructuring plan. Additionally, we integrated our Ideel apparel marketplace from its standalone website to groupon.com and exited its fulfillment center and an office location. We also recently announced that we are exiting four additional countries in our EMEA segment in the first quarter of 2016. We are continuing to conduct a strategic review of certain international markets as we seek to optimize our global footprint and focus on the markets that we believe to have the greatest potential impact on our results of operations.
We continue to seek to improve our operating efficiency through a global initiative to integrate and streamline our technology platforms in order to provide a fast, stable and secure platform to support our business. Additionally, we are increasingly automating the system tools and capabilities for our functional teams to improve our overall operating efficiency. We expect to continue our efforts to streamline and simplify our business in the future.
Improving margins in our Goods category. We recently commenced an initiative to de-emphasize lower margin product offerings in our Goods category. We expect to continue to focus on improving margins in future periods, both by focusing on higher-margin offerings and also by seeking to bring more third party sellers of merchandise to our marketplaces in North America. Additionally, in connection with our efforts to reduce costs and improve the customer experience, we continue to focus on streamlining our order fulfillment process for Goods. For example, to reduce the involvement of third party logistics providers w e launched our own fulfillment center in 2013 and have increased our use of arrangements in which the suppliers of our product offerings ship merchandise directly to our customers. We also continue to refine our inventory management practices to better allocate inventory among warehouses in different geographic regions throughout the United States to reduce shipping distances to customers and increase units per shipment.

Increasing our active customer base. In addition to expanding our supply of offers, we are increasing our marketing investments in order to secure new customers and drive additional growth. Our online marketing campaigns are primarily focused on customer acquisition, customer retention and driving incremental sales. We are focusing our offline advertising activities on developing our brand strength and awareness.     
Improving the customer experience. Our goal is to build marketplaces that our customers rely on to discover and save on amazing things to eat, see, do , buy and where to travel. We believe that the customer experience will improve by growing the supply of active deals available through our marketplaces, continuing to invest in our mobile technology and by creating a frictionless experience for our customers and merchants.

Following our transition from primarily a "push" business model that generated demand by emailing offers to customers to more of a demand fulfillment, or "pull," model that enables customers to search for goods and services on our websites and mobile applications, we continue to build our marketplaces and expand our supply of offers. 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 650,000 deals available worldwide as of the end of the fourth quarter of 2015. By continuing to develop and expand our marketplaces and improve the search functionality of our websites and mobile applications, we seek to seamlessly connect our customers with great deals on local merchant offerings, merchandise and travel.
Investments in our mobile technology enable us to provide customers with new and innovative ways to discover our deal offerings across our platforms through browse, search, location, proximity, personalization, and relevance, among others. Given the increasing quantity of offers on our platforms, we believe that advances in connecting our customers to our deal offerings will lead to higher conversion and overall strong customer satisfaction. Additionally, we believe that improving our mobile technology will help us capitalize on the growing trend of consumers making purchases through smartphones, tablets, and other mobile devices. In the fourth quarter of 2015, over 55% of our global transactions were completed on mobile devices and over 120 million people have downloaded our mobile applications worldwide as of December 31, 2015.
As we continue to build our marketplaces, we want our customers to have a superior, frictionless experience every time they use our product whether finding, booking, buying or redeeming an offer. For merchants, this includes providing capabilities to manage demand for their goods and services and improving their ability to acquire customers. For consumers, this includes easily finding offers and accessing features such as booking and takeout and delivery that augment the overall experience, as well as seamlessly purchasing and redeeming offers.
Our Business


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We earn revenue from transactions where we act as a marketing agent by selling vouchers through our online local marketplaces that can be redeemed for goods or services with a third party merchant. Our third party revenue from those transactions is reported on a net basis as the purchase price received from the customer for the voucher less an agreed upon portion of the purchase price paid to the featured merchant. We also earn revenue by selling merchandise inventory directly to customers through our online marketplaces. Our direct revenue from those transactions is the purchase price received from the customer.
Our business model has evolved in recent years from primarily an email-based "push" model with a limited number of deals offered at any given time to more extensive online "pull" marketplaces, where customers can come to Groupon's websites and mobile applications to search and browse for deals on goods and services. We also 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.    
We offer goods and services through our online local marketplaces in three primary categories: Local, Goods and Travel. Collectively, Local and Travel comprise our "Services" offerings and Goods, which we also refer to as "Shopping," reflects our product offerings.

Local. Our Local category includes offerings from local and national merchants, as well as local events. Local also includes other revenue sources such as commission revenue, payment processing revenue and advertising revenue, as these revenue sources are primarily generated through our relationships with local and national merchants. Our local offerings comprise 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 2015, we acquired OrderUp, Inc. ("OrderUp"), in order to expand our local offerings in the food ordering and delivery sector and enhance related technology capabilities. In addition to local and national deals, through our Coupons offering we give customers the ability to access digital 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 merchandise inventory, directly to customers, as well as third party revenue from transactions in which we act as a marketing agent and sell vouchers that can be redeemed for products with a third party merchant. Goods transactions in our North America and EMEA segments are primarily direct revenue deals. Goods transactions in our Rest of World segment are primarily third party revenue deals.

Travel . Through our Travel 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 a travel voucher from us. However, for some of our hotel deals, customers make room reservations directly through our websites.

Distribution
Our customers access our online local commerce marketplaces through our websites, which primarily consist of localized groupon.com sites in countries throughout the world, and through our mobile applications. We use a variety of marketing channels to direct customers to the deal offerings available through these marketplaces, as described in the "Marketing" section below.

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 many of our markets, consumers have a "Nearby" tab, which shows the deals that are closest to the consumer's location. In the fourth quarter of 2015, over 55% of our global transactions were completed on mobile devices.

Marketing
We primarily use marketing to acquire customers and promote awareness of our marketplaces and the services and product offerings available through those marketplaces. Consequently, marketing is an important part of our growth strategy and remains a key element of our business operations. Our marketing spend increased, both in absolute dollars and as a percentage of revenue,


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during the year ended December 31, 2015, as compared to the prior year. Additionally, we intend to significantly increase marketing expense in future periods in connection with our efforts to accelerate customer growth.

We use a variety of marketing channels to make customers aware of the deal offerings on our mobile and web platforms, including search engines, through search engine optimization ("SEO") and marketing ("SEM"), email, affiliate channels, display advertising, and, to a lesser extent, offline marketing.

Search engines. Customers can access our deal offerings indirectly through third party search engines. We use SEO and SEM to increase the visibility of our offerings in web search results.

Email. In North America and most of our international markets, we use targeting technology to determine which deal offerings to communicate to our email subscribers based on their locations and personal preferences. A subscriber who clicks on a deal offering within an email is directed to our website or mobile application to learn more about the deal and make a purchase.

Affiliate channels . We have an affiliate program that utilizes third parties to promote our deal offerings online. Affiliates earn commissions when customers access our deal offerings through links on their websites and make purchases on our platform. We expect to continue to leverage affiliate relationships to extend the distribution of our deals to a broad base of potential customers.

Other . We publish deals through various social networks and adapt our notifications to the particular format of each of these social networking platforms. Our websites and mobile application interfaces enable consumers to push notifications of our deals to their personal social networks. In addition to social networks, we promote our deals using display advertising on websites. To a lesser extent, we also use radio and television advertising.

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 qualifying merchandise sales.

Sales and Operations
Our sales force consists of approximately 4,000 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 Phoenix, and our international merchant sales representatives and support staff are based in their respective local offices. Our global sales and sales support headcount by segment as of December 31, 2015 was as follows:
North America
1,347
EMEA
1,643
Rest of World
1,002
Total
3,992
Other key operational functions include deal managers, editorial, merchant services, customer service, technology, merchandising and logistics. Deal managers work with sales teams to optimize deal structure and pricing, as well as manage the category, discount and geographic mix 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 systems. Merchandising and logistics personnel are responsible for managing inventory and the flow of products from suppliers to our customers.

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 with customers conducted on our websites and mobile applications, we use data encryption protocols to secure information while in transit. See " Risk Factors " for additional information relating to cyber threats.



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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. In addition, our Goods business competes with other e-commerce marketplaces and traditional retailers. As we expand our business into additional categories and subcategories, we will compete with online and offline merchants offering similar products and services. For example, we have recently begun to compete with businesses that offer restaurant takeout and delivery services. In addition, we compete with online advertising platforms, traditional offline coupon and discount services, and other offline advertising businesses. We believe the principal competitive factors in our markets include the following:

size of active customer base and breadth of merchant relationships;
mobile penetration;
understanding of local business trends;
ability to structure deals to generate positive return on investment for merchants;
ability to generate large volumes of sales in our Goods and Travel categories; 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 retail 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 will continue to affect, our business and quarterly sequential revenue growth rates. We recognized 29.4%, 29.0% and 29.9% of our annual revenue during the fourth quarter of 2015 , 2014 and 2013 , 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 relatively 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 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 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.


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Various U.S. laws and regulations, such as the Bank Secrecy Act of 1970 (the "Bank Secrecy Act"), the Dodd-Frank Wall Street Reform and Consumer Protection 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 patents and pending patent applications in the United States and internationally and own and have applied for 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 or deter independent development of equivalent or superior intellectual property rights by others. 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, 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. As 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.

We have received in the past, and we anticipate we will receive in the future, communications alleging that items offered or sold through our website infringe third party copyrights, trademarks and trade names or other intellectual property rights or that we have otherwise infringed third parties’ past, current or future intellectual property rights. We may be unable to prevent third parties from offering and selling unlawful goods, and we may be subject to allegations of civil or criminal liability for unlawful activities carried out by third parties through our website. We may implement measures in an effort to protect against these potential liabilities that could require us to spend substantial resources and/or to reduce revenues by discontinuing certain service offerings. Any costs incurred as a result of liability or asserted liability relating to the sale of unlawful goods or the unlawful sale of goods could harm our business.

Employees
    As of December 31, 2015 , there were 3,846 employees in our North America segment, consisting of 1,347 sales representatives and 2,499 corporate, operational and customer service representatives, 3,159 employees in our EMEA segment, consisting of 1,643 sales representatives and 1,516 corporate, operational and customer service representatives, and 2,867 employees in our Rest of World segment, consisting of 1,002 sales representatives and 1,865 corporate, operational and customer service representatives.
Executive Officers
The following table sets forth information about our executive officers:


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Name
 
Age
Position
 
 
 
Rich Williams
40
Chief Executive Officer and Director
Brian Kayman
52
Interim Chief Financial Officer
Dane Drobny
48
General Counsel and Corporate Secretary
Brian Stevens
41
Chief Accounting Officer
Rich Williams has served as our Chief Executive Officer and member of the Board of Directors since November 2015. Prior to this role, Mr. Williams served as our Chief Operating Officer since June 2015 and President of North America since October 2014. He joined the Company in June 2011 as Senior Vice President of Marketing. Prior to joining Groupon, Mr. Williams served in a variety of marketing leadership roles at Amazon.com, Inc. (NASDAQ: AMZN) from January 2008 to June 2011, most recently as the Director, Paid Traffic leading global advertising. Prior to joining Amazon, he spent nearly seven years in sales and marketing leadership roles at Experian plc (LSE: EXPN), a global information services company.
Brian Kayman has served as our Interim Chief Financial Officer since June 2015. Prior to this role, Mr. Kayman served as the Company’s Vice President, Tax since 2012 and Treasurer since April 2013. Prior to joining Groupon, Mr. Kayman previously served as an active principal at Miller Cooper & Co., Ltd. from 2004 to 2012, a partner at Deloitte & Touche LLP from 2002 to 2004 and spent approximately 14 years as a certified public accountant at Arthur Andersen, most recently as a partner.
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. 
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 a partner. Mr. Stevens spent five years in KPMG's Department of Professional Practice and was a practice fellow at the Financial Accounting Standards Board from 2006 to 2008. Mr. Stevens is a member of the American Institute of Certified Public Accountants and serves on its Financial Reporting Executive Committee (FinREC).
Available Information
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 them. 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) and its blog (https://www.groupon.com/blog) as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.  Information contained on our website and blog is not a part of this Annual Report on Form 10-K.
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.


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Our revenue and operating results may continue to vary from quarter to quarter due to seasonality and other reasons such as 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;
achieve additional mobile adoption to capitalize on customers' continued shift toward mobile device usage;
increase the awareness of our brand domestically and internationally;
successfully achieve the anticipated benefits of business combinations or acquisitions, strategic investments and restructuring activities;
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.
Our strategy to grow our 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 and location. We also recently announced an initiative to de-emphasize lower margin product offerings in our Goods category. If we are not successful in achieving 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 continue 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


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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 we have or have greater resources in the local market;
different regulatory or other legal requirements, including regulation of gift cards and coupon terms, Internet services, professional selling, distance selling, bulk emailing, privacy and data protection, cybersecurity, business licenses and certifications, the types of services we may offer, 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;
difficulty in staffing, developing and managing foreign operations as a result of distance, language barriers and cultural differences;
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 ensure that our employees, contractors, or agents will not violate our policies. Changing laws, regulations and enforcement actions in the United States 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 may be adversely affected if we are unable to execute on our marketing strategy.
Our marketing strategy is primarily focused on customer acquisition, activation and conversion and mobile application downloads, as well as increasing awareness of our brand, including our online marketplaces. We increased our marketing expense to $254.3 million during 2015 as compared to $242.0 million during 2014 . We intend to continue this increased marketing investment in 2016, which will focus primarily on new customer acquisition. If any of our assumptions regarding our marketing activities and strategies prove incorrect, our ability to generate profits from our investments may be less than we anticipated. In such case, we may need to increase expenditures 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, 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


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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 or increase awareness of our marketplaces, we may not be able to retain or acquire customers at levels necessary to grow our business and profitability. If we are unable to acquire new customers in numbers sufficient to grow our business and offset the number of existing active customers that have ceased to make purchases, our revenue may decrease and our operating results may be adversely affected.
Our future success depends upon our ability to attract and retain high quality merchants.
We must continue to attract and retain high quality merchants in order to increase revenue and profitability. 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 voucher 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 stop working with us or require a higher portion of the total proceeds from each voucher or product sold. 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 and retain high quality 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 may be adversely affected.
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.
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 a security breach, whether through cyber-attack or cyber intrusion via the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, or other significant disruption of our information technology networks and related 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, 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.


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We may incur losses in the future as we expand our business.
We had an accumulated deficit of $901.3 million as of December 31, 2015 . We anticipate that our financial results will be negatively impacted as we continue to invest in our growth, by increasing our marketing spending and accepting a lower portion of the proceeds from our deals, as we attempt to increase our active customer base and add more merchants to our marketplaces. Our expansion 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 increased competition from 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 greater 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;
mobile penetration;
understanding local business trends;
ability to structure deals to generate positive return on investment for merchants;
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;
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, 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 mobile applications, reduce our market share and adversely impact our gross margins. In addition, we are dependent on some of our existing or potential competitors for display 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


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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 vouchers or products and we make payments to merchants at a subsequent date, either on a fixed schedule or upon redemption by customers. We currently pay merchants upon redemption for many deals in our international markets, but we may continue to move toward offering payments on a fixed schedule in those markets.
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 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 2015 , over 55%  of our global transactions were completed on mobile devices. Additionally, over 120 million people have downloaded our mobile applications worldwide as of December 31, 2015. In order to continue to grow our mobile transactions, it is critical that our applications are compatible 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 or if we fail to develop applications with adequate functionality on a wide range of mobile devices.
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 network infrastructure, websites, mobile applications or transaction processing systems could result in a loss of subscribers, customers or merchants.
Customers access our marketplaces 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 third party search engines. 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 mobile 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 mobile 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 mobile 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 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 less favorably 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 our 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’


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email handling or authentication technologies, our ability to contact customers through email could be significantly restricted. In addition, if we are placed on "spam" lists or lists of entities that have been involved in sending unwanted, unsolicited emails, our operating results and financial condition could be substantially harmed.
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 unauthentic, 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. Even if we prevail, any such legal action 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. Further, in any such matter, we may not be entitled to indemnification from our supplier, or able to effectively enforce the supplier’s contractual indemnification obligations.
We may be subject to product liability claims if people or property are harmed by the products we sell.

Some of the products we sell may expose us to product liability claims relating to personal injury, death, or environmental or property damage, and may require product recalls or other actions. Certain third parties also sell products using our e-commerce platform that may increase our exposure to product liability claims, such as if these sellers do not have sufficient protection from such claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability or we may not be able to effectively enforce our contractual indemnification rights.

We are subject to inventory management and order fulfillment risks as a result of our Goods category.

We purchase a majority of the merchandise that we offer for sale to our customers. The demand for products can change for a variety of reasons, including customer preference, quality, seasonality, and customers' perception of the value 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 have either an excess or a shortage of inventory, either of which would have a material adverse effect on our business.
It is important that we 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. We have substantially implemented this platform in most EMEA counties and are in the process of introducing 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, 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.
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.


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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 and cash flows. For additional information regarding these and other lawsuits in which we are involved, see Note 10, "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 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 merchants. Our inability to seek reimbursement from 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 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 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.
Our restructuring plan could be disruptive to our operations and adversely affect our results of operations and financial condition, and we may not realize some or all of the anticipated benefits of this plan in the time frame anticipated or at all.


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In the third quarter of 2015, our Board of Directors approved a restructuring plan relating primarily to workforce reductions in our international operations. In addition to the workforce reductions in our ongoing markets, we ceased operations in six countries within our Rest of World segment and seven countries within our EMEA segment during 2015 in connection with the restructuring plan. We expect this plan to be substantially complete by September 2016. The implementation of the restructuring plan, including the impact of workforce reductions, could be disruptive to our operations, make it difficult to attract or retain employees, result in higher than anticipated charges, create issues relating to data retention and access to our data or systems and otherwise adversely affect our results of operations and financial condition. In addition, our ability to complete the restructuring plan and achieve the anticipated benefits from the plan within the expected time frame or at all is subject to estimates and assumptions and may vary materially from our expectations, including as a result of factors that are beyond our control. Furthermore, following completion of the restructuring plan, our business may not be more efficient or effective than prior to implementation of the plan.

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. The pursuit and consummation of such transactions can result in operating difficulties, dilution, management distraction and other potentially adverse consequences. We have in the past acquired and divested a number of companies and may complete additional transactions in the future. In particular, as previously announced we continue to explore strategic alternatives in our international business to streamline our operations and reduce our geographic footprint.
Acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquired business, valuation of the acquired business and 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 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 of our strategic transactions in the time frame expected or at all.

We may 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.
 
We currently hold non-controlling minority investments in Monster Holdings LP ("Monster LP"), GroupMax Pte Ltd. ("GroupMax") and other entities and we may make additional strategic minority investments in the future. Such minority investments inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/or compliance risks associated with the investments. Our partners in these investments may have business goals and interests that are not aligned with ours, or may exercise their rights in a manner in which we do not approve. These circumstances could lead to delayed decisions or disputes and litigation with our partners, all of which could have a material adverse impact on our reputation, business, financial condition and results of operations.

Both Monster LP and GroupMax have been pursuing growth strategies in which they are spending significantly on marketing and offering customer incentives that frequently result in low or negative margins. Those strategies, which are consistent with the business plans contemplated at the time Monster LP and GroupMax received third party investments in May 2015 and August 2015, respectively, have generated significant operating losses and negative cash flows as the entities build their respective active customer bases. If Monster LP or GroupMax seek additional financing in order to fund their growth strategies, such financing transactions may result in dilution of our ownership stakes and they may occur at lower valuations than the investment transactions in 2015, which could significantly decrease the fair values of our investments in those entities. Additionally, if they are unable to obtain any such financing, those entities could need to significantly reduce their spending and use of customer incentives in order to fund their operations. Such actions likely would result in reduced growth forecasts, which also could significantly decrease the fair values of our investments in those entities.




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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, or developments in existing, 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. To the extent that 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 domestic and 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 benefits, 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 financial position, operating results and 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 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.
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


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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 our vouchers 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 our vouchers 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 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 of 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 vouchers 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 vouchers, 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 results of operations.
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. The application of existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet is not clear as the vast majority of these laws were adopted prior to the advent 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 mobile 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.


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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, there have been recent Congressional hearings and increased attention relating 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.
Misclassification or reclassification of our independent contractors or employees could increase our costs and adversely impact our business.

Our workers are classified as either employees or independent contractors, and if employees, as either exempt from overtime or non-exempt (and therefore overtime eligible). Regulatory authorities and private parties have recently asserted within several industries that some independent contractors, including those in the food ordering and delivery industry, should be classified as employees and that some exempt employees, including those in sales-related positions, should be classified as non-exempt based upon the applicable facts and circumstances and their interpretations of existing rules and regulations. If we are found to have misclassified employees as independent contractors or non-exempt employees as exempt, we could face penalties and have additional exposure under federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee overtime and benefits and tax withholdings. Legislative, judicial, or regulatory (including tax) authorities could also introduce proposals or assert interpretations of existing rules and regulations that would change the classification of a significant number of independent contractors doing business with us from independent contractor to employee and a significant number or exempt employees to non-exempt. A reclassification in either case could result in a significant increase in employment-related costs such as wages, benefits and taxes. The costs associated with employee classification, including any related regulatory action or litigation, could have a material adverse effect on our results of operations and our financial position.
We are exposed to potential legal claims based on the nature of our food ordering and delivery business.
We are exposed to potential legal claims relating to our food ordering and delivery business, including potential claims related to food offerings, delivery and quality. For example, third parties could assert legal claims against us in connection with personal injuries related to food poisoning or tampering or accidents caused by the delivery drivers or other injuries or harm caused by delivery drivers. Litigation can be expensive, time-consuming and disruptive to normal business operations, so if these types of claims arise, they could have a material adverse effect on our business, financial condition, results of operations and cash flows.



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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 mobile 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 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 upon 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 continue to provide reliable, trustworthy and high quality offerings on our online marketplaces, 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, mobile applications, practices or service offerings, or the offerings of our merchants, could adversely affect our reputation,


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resulting in difficulties in recruiting, decreased revenue and a negative impact on the number of merchants we feature and the size of our customer base, the loyalty of our customers and the number and variety of deals we offer each day. As a result, our business, financial condition and results of operations could be materially and adversely affected.
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 is expected to 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 vouchers with unique identifiers. It is possible that consumers or other third parties will seek to create counterfeit vouchers 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 offering goods or services on our marketplaces, if they are affected by buyer fraud or other types of fraud.
We may incur significant losses from fraud and counterfeit vouchers. We may incur losses from claims that the customer did not authorize a purchase, from credit card fraud, 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 continual improvement 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 cards, debit cards 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 merchants refuse or cannot reimburse chargebacks resolved in favor of their customers.              
    
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


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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 customers. 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 adversely impact our operating results.
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, which could prevent us from growing, and our existing credit agreement could restrict our business activities.
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 $250.0 million credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of August 1, 2014, as amended (the "Credit Agreement"). Our Credit Agreement contains financial and other covenants that may restrict our business activities or our ability to execute our strategic objectives, and our failure to comply with these covenants could result in a default under our Credit Agreement. Furthermore, additional equity financing may dilute the interests of our common stockholders, and debt financing, if available, may involve restrictive covenants that could further 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 significantly. 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;
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 number of shares of our Class A common stock that are available for sale;


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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 exits 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 share repurchase program may affect the value of our Class A common stock, and there can be no assurance that our share repurchase program will enhance shareholder value.

Pursuant to our publicly announced share repurchase program, we are authorized to repurchase up to $500.0 million of our outstanding Class A common stock through August 2017. The Company has approximately $156.8 million remaining under this authorization as of December 31, 2015 . 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. Additionally, repurchases under our share repurchase program have and will continue to diminish our cash reserves, which could impact our ability to pursue possible strategic opportunities and acquisitions and could result in lower overall returns on our cash balances. There can be no assurance that any share repurchases will enhance shareholder value because the market price of our common stock has declined, and may continue to decline. Although our share repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness.

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, 2016, our founders, Eric Lefkofsky, Bradley Keywell and Andrew Mason control 100% of our outstanding Class B common stock and Messrs. Keywell and Lefkofsky control approximately 22.6% of our outstanding Class A common stock, together representing approximately 52.1% of the voting power of our outstanding capital stock. Information about Mr. Mason's ownership of Class A common stock is not publicly available. Messrs. Lefkofsky, Keywell and Mason 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. Although the Class B common stock held by our founders will convert automatically into shares of common stock on October 31, 2016, our founders may continue to have significant stock


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ownership and influence over corporate matters following such conversion. 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.
Increased sales of our common stock in the market following the conversion of our Class A common stock and Class B common stock into a single class of common stock, or the perception that those sales will occur, may adversely affect our stock price.    

On October 31, 2016, all outstanding shares of our Class A common stock and Class B common stock will automatically convert into a single class of common stock.  The Class B common stock is currently held by our founders, Eric Lefkofsky, Bradley Keywell and Andrew Mason, and the Class B common stock contains restrictions on transfer.  There is currently no market for our Class B common stock.  Although following the conversion, the common stock that the Class B common stock converts into will constitute "restricted securities" under the Securities Act, if the holders comply with the applicable volume limits and other conditions prescribed in Rule 144 under the Securities Act, all of these restricted securities will be freely tradeable on October 31, 2016.  Increased sales of our common stock in the market following the conversion, or the perception that those sales will occur, may adversely affect our stock price.    

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 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 until October 31, 2016. 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. Furthermore, following the conversion of our Class B common stock into shares of common stock, our founders may continue to have significant stock ownership and influence over these matters.
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 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.


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ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
As of December 31, 2015 , 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
657,000
December 2025
Corporate offices
EMEA
382,000
June 2024
Corporate offices
Rest of World
293,000
May 2025
 
 
 
 
Fulfillment and data centers
North America
337,000
August 2020
Fulfillment and data centers
EMEA
17,000
March 2019
Fulfillment and data centers
Rest of World
56,000
January 2018
ITEM 3: LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Note 10, "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.


28


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.
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

 
 
 
2015
High
Low
First Quarter
$
8.37

$
6.75

Second Quarter
$
7.54

$
5.01

Third Quarter
$
5.32

$
3.21

Fourth Quarter
$
4.05

$
2.54

Holders
As of February 9, 2016, there were 173 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. On October 31, 2016, all of our outstanding shares of Class A common stock and Class B common stock will convert into a single class of 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 2016 Annual Meeting of Stockholders.
Recent Sales of Unregistered Securities
During the year ended December 31, 2015 , we did not issue any unregistered securities.
Issuer Purchases of Equity Securities
In 2015, our Board of Directors approved a new share repurchase program, under which we are authorized to repurchase up to $500.0 million of our Class A common stock through August 2017. Prior to commencing repurchases under our existing share repurchase program, we completed our previously authorized two-year, $300.0 million share repurchase program. 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, future cash flows and borrowings under our credit facility. Repurchases will be made in compliance with SEC rules and other legal requirements


29


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, 2015 , we purchased 35,326,954 shares of Class A common stock for an aggregate purchase price of $112.5 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, 2015 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, 2015
 
11,029,500

 
$
3.65

 
11,029,500

 
$
228,794,354

November 1-30, 2015
 
12,236,296

 
$
2.85

 
12,236,296

 
$
194,095,422

December 1-31, 2015
 
12,061,158

 
$
3.10

 
12,061,158

 
$
156,808,218

Total
 
35,326,954

 
$
3.18

 
35,326,954

 
$
156,808,218

From the inception of our share repurchase programs in August 2013 through December 31, 2015, we have repurchased 128,468,165 shares of our Class A common stock for an aggregate purchase price of $645.0 million (including fees and commissions).    
The following table provides information about purchases of shares of our Class A common stock during the three months ended December 31, 2015 related to shares withheld upon vesting of restricted stock units for minimum tax withholding obligations:
Date
 
Total Number of Shares Purchased (1)
 
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, 2015
 
526,057

 
$
3.81

 

 

November 1-30, 2015
 
411,790

 
3.27

 

 

December 1-31, 2015
 
705,220

 
3.27

 

 

Total
 
1,643,067

 
$
3.44

 

 

(1)
Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.



30


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 on the last trading day of each year end period for 2011, 2012, 2013, 2014 and 2015.
Source: Yahoo! Finance


31



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 "M anagement's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results.     
 
Year Ended December 31,
 
2015

2014

2013

2012

2011
 
(in thousands, except share and per share amounts)
Consolidated Statements of Operations Data (1) :
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Third party and other
$
1,372,533

 
$
1,501,011

 
$
1,654,654

 
$
1,879,729

 
$
1,589,604

Direct
1,746,983

 
1,541,112

 
919,001

 
454,743

 
20,826

Total revenue
3,119,516

 
3,042,123

 
2,573,655

 
2,334,472

 
1,610,430

Cost of revenue:
 
 
 
 
 
 
 
 
 
Third party and other
188,932

 
203,058

 
232,062

 
297,739

 
243,789

Direct
1,545,519

 
1,373,756

 
840,060

 
421,201

 
15,090

Total cost of revenue
1,734,451

 
1,576,814

 
1,072,122

 
718,940

 
258,879

Gross profit
1,385,065

 
1,465,309

 
1,501,533

 
1,615,532

 
1,351,551

Operating expenses:
 
 
 
 
 
 
 
 
 
Marketing
254,335

 
241,954

 
214,824

 
336,854

 
768,472

Selling, general and administrative
1,192,792

 
1,191,385

 
1,210,966

 
1,179,080

 
821,002

Restructuring charges
29,568

 

 

 

 

Gain on disposition of business
(13,710
)
 

 

 

 

Acquisition-related expense (benefit), net
1,857

 
1,269

 
(11
)
 
897

 
(4,537
)
  Total operating expenses
1,464,842

 
1,434,608

 
1,425,779

 
1,516,831

 
1,584,937

Income (loss) from operations
(79,777
)
 
30,701

 
75,754

 
98,701

 
(233,386
)
Other income (expense), net
(28,539
)
 
(33,450
)
 
(94,663
)
 
(3,759
)
 
(20,679
)
Income (loss) from continuing operations before provision (benefit) for income taxes
(108,316
)
 
(2,749
)
 
(18,909
)
 
94,942

 
(254,065
)
Provision (benefit) for income taxes
(19,145
)
 
15,724

 
70,037

 
145,973

 
43,697

Income (loss) from continuing operations
(89,171
)
 
(18,473
)
 
(88,946
)
 
(51,031
)
 
(297,762
)
Income (loss) from discontinued operations, net of tax
122,850

 
(45,446
)
 

 

 

Net income (loss)
33,679

 
(63,919
)
 
(88,946
)
 
(51,031
)

(297,762
)
Net (income) loss attributable to noncontrolling interests
(13,011
)
 
(9,171
)
 
(6,447
)
 
(3,742
)
 
18,335

Net income (loss) attributable to Groupon, Inc.
20,668

 
(73,090
)
 
(95,393
)
 
(54,773
)
 
(279,427
)
Redemption of preferred stock in excess of carrying value

 

 

 

 
(34,327
)
Adjustment of redeemable noncontrolling interests to redemption value

 

 

 
(12,604
)
 
(59,740
)
Net income (loss) attributable to common stockholders
$
20,668

 
$
(73,090
)
 
$
(95,393
)
 
$
(67,377
)
 
$
(373,494
)
 
 
 
 
 
 
 
 
 
 
Basic net income (loss) per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(0.16
)
 
$
(0.04
)
 
$
(0.14
)
 
$
(0.10
)
 
$
(1.03
)
Discontinued operations
0.19

 
(0.07
)
 

 

 

Basic net income (loss) per share
$
0.03

 
$
(0.11
)
 
$
(0.14
)
 
$
(0.10
)
 
$
(1.03
)
 
 
 
 
 
 
 
 
 
 
Diluted net income (loss) per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(0.16
)
 
$
(0.04
)
 
$
(0.14
)
 
$
(0.10
)
 
$
(1.03
)
Discontinued operations
0.19

 
(0.07
)
 

 

 

Diluted net income (loss) per share
$
0.03

 
$
(0.11
)
 
$
(0.14
)
 
$
(0.10
)
 
$
(1.03
)
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding
 
 
 
 
 
 
 
 
 
Basic
650,106,225

 
674,832,393

 
663,910,194

 
650,214,119

 
362,261,324

Diluted
650,106,225

 
674,832,393

 
663,910,194

 
650,214,119

 
362,261,324




32


 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents (1)
$
853,362

 
$
1,016,634

 
$
1,240,472

 
$
1,209,289

 
$
1,122,935

Working capital (deficit) (2)
(128,283
)
 
91,460

 
394,340

 
341,834

 
385,763

Total assets
1,796,264

 
2,227,597

 
2,042,010

 
2,031,474

 
1,774,476

Total long-term liabilities
122,152

 
169,055

 
142,550

 
120,932

 
78,194

Total Groupon, Inc. Stockholders' Equity
469,398

 
762,826

 
713,651

 
744,040

 
702,541

(1)
We disposed of our Korean subsidiary Ticket Monster, Inc. in May 2015. The financial results of Ticket Monster, including the gain on disposition and related tax effects, are presented as discontinued operations for the years ended December 31, 2015 and 2014. Additionally, the assets and liabilities of Ticket Monster are presented as held for sale as of December 31, 2014. See Note 3, " Discontinued Operations and Other Dispositions, " for additional information.
(2)
Prior period working capital amounts have been retrospectively adjusted for the reclassification of deferred income tax assets and liabilities from current to non-current due to our adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes, during the year ended December 31, 2015. See Note 2, " Summary of Significant Accounting Policies, " for additional information.



33


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, generally at a discount. Consumers access those marketplaces through our websites, primarily localized groupon.com sites in many countries, and our mobile applications. 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.

Our operations are organized into three segments: North America, EMEA, which is comprised of Europe, Middle East and Africa, and the remainder of our international operations ("Rest of World"). See Note 18, " Segment Information, " for further information. For the year ended December 31, 2015 , we derived 65.6% of our revenue from our North America segment, 27.8% of our revenue from our EMEA segment and 6.6% of our revenue from our Rest of World segment.
    
We offer deals through our online local commerce marketplaces in three primary categories: Local Deals ("Local"), Groupon Goods ("Goods") and Groupon Getaways ("Travel"). Collectively, Local and Travel comprise our "Services" offerings and Goods, which we also refer to as "Shopping," reflects our product offerings. In our Goods category, we often act as the merchant of record, particularly for deals in North America and in EMEA. 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 $3,119.5 million during the year ended December 31, 2015 , as compared to $3,042.1 million during the year ended December 31, 2014 .

In January 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. On May 27, 2015, the Company sold a controlling stake in Ticket Monster that resulted in its deconsolidation. The financial results of Ticket Monster, including the gain on disposition and related tax effects, are presented as discontinued operations for year ended December 31, 2015 . Additionally, the assets and liabilities of Ticket Monster as of December 31, 2014 are presented as held for sale in the Company's consolidated financial statements. See Note 3, " Discontinued Operations and Other Dispositions ," for additional information. Unless otherwise stated, all amounts discussed below represent continuing operations.
In September 2015, our Board of Directors approved a restructuring plan relating primarily to workforce reductions in
our international operations. See Note 13, " Restructuring ," for additional information.

We are making a number of strategic changes in our business. We intend to significantly increase marketing expenses in connection with our efforts to accelerate customer growth. In the near term, we expect that these increased expenditures will increase our operating losses and reduce Adjusted EBITDA. We also intend to de-emphasize lower margin product offerings in our Goods category. While we believe that this change in focus will improve the gross profit margins generated by that category, we expect that it will adversely impact revenue in the near term. Additionally, we have ceased operations in six countries within our Rest of World segment and seven countries within our EMEA segment in connection with our restructuring plan. We continue to conduct a strategic review of certain international markets as we seek to optimize our global footprint and focus on the markets that we believe to have the greatest potential impact on our results of operations. However, we cannot provide any assurance as to the likelihood, timetable or type of any potential transactions.
How We Measure Our Business


34


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. 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.

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 transactions, 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 transactions, 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 because it measures the dollar volume of transactions generated through our marketplaces. Tracking gross billings on third party revenue transactions also allows us to track changes in the percentage of gross billings that we are able to retain after payments to merchants.
Revenue. Third party revenue, which is earned from transactions in which we act as a marketing agent, is reported on a net basis as the purchase price received from the customer for a voucher 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, which is earned from sales of merchandise inventory directly to customers through our online marketplaces, is reported on a gross basis as the purchase price received from 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 we define as net income (loss) from continuing operations excluding income taxes, interest and other non-operating items, depreciation and amortization, stock-based compensation, acquisition-related expense, net and other items that are unusual in nature or infrequently occurring. 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 provided by (used in) operating activities from continuing operations less purchases of property and equipment and capitalized software from continuing operations. 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, 2015 , 2014 and 2013 (in thousands):
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
Gross billings
 
$
6,255,540

 
$
6,237,832

 
$
5,757,330

Revenue
 
3,119,516

 
3,042,123

 
2,573,655

Gross profit
 
1,385,065

 
1,465,309

 
1,501,533

Adjusted EBITDA
 
256,832

 
262,301

 
286,654

Free cash flow
 
208,130

 
168,937

 
154,927



35


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, 2015 , 2014 and 2013 were as follows:
 
 
Trailing twelve months ended December 31,
 
 
2015
 
2014 (1)
 
2013
TTM Active customers (in thousands)
 
48,889

 
47,426

 
43,673

TTM Gross billings per average active customer
 
$
129.98

 
$
136.95

 
$
136.69

(1)
TTM active customers for the year ended December 31, 2014 has been reduced from 53.9 million active customers previously reported to 47.4 million active customers due to the exclusion of Ticket Monster, which has been classified as discontinued operations. The exclusion of Ticket Monster's gross billings and active customers decreased TTM gross billings per average active customer for the year ended December 31, 2014 from $155.47 previously reported to $136.95.
Our units for the years ended December 31, 2015 , 2014 and 2013 were as follows:
 
 
Year Ended December 31,
 
 
2015
 
2014 (1)
 
2013
Units (in thousands)
 
220,824

 
214,301

 
193,426

(1)
Units have been reduced from 356.1 million to 214.3 million for the year ended December 31, 2014 due to the exclusion of Ticket Monster, which has been classified as discontinued operations.
Factors Affecting Our Performance
Deal sourcing and quality. We consider our merchant relationships to be a vital part of our business model and continue to make 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. Our online marketplaces, which we sometimes refer to as "pull" marketplaces, enable customers to search and browse for specific types of deals on our websites and mobile applications. In North America and many of our foreign markets, merchants often have 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. However, merchants have the ability to withdraw their extended deal offerings, and we generally do not have 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, 2015 , as compared to 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


36


lower margins.
International operations. Our international operations have decreased as a percentage of our total revenue in the current year. For the years ended December 31, 2015 , 2014 and 2013 , 27.8% , 31.6% and 28.9% of our revenue was generated from our EMEA segment, respectively, and 6.6% , 8.4% and 12.0% 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 and Rest of World segments decreased for the year ended December 31, 2015 , as compared to the prior year, and the percentage of total revenue generated by those segments decreased on a year-over-year basis. Revenue from our North America segment increased for the year ended December 31, 2015 , as compared to the prior year, and the percentage of total revenue generated by our North America segment increased on a year-over-year basis. The increase in North America revenue as a percentage of total revenue was primarily due to an increase in direct revenue transactions from our Goods category in North America, as direct revenue is presented on a gross basis in our consolidated statements of operations, as well as the adverse impact of year-over-year changes in foreign exchange rates on our international revenue.
In September 2015, our Board of Directors approved a restructuring plan relating primarily to workforce reductions in
our international operations. In addition to the workforce reductions in our ongoing markets, we ceased operations in six countries within our Rest of World segment and seven countries within our EMEA segment during 2015 as part of the restructuring plan. We also recently announced that we are exiting four additional countries in our EMEA segment in the first quarter of 2016. See Note 13, " Restructuring ," for additional information. Additionally, we continue to conduct a strategic review of certain of our international markets. In the near term, these actions could potentially cause disruption that may adversely impact the performance of our international operations.

Marketing activities. We must continue to acquire and retain customers in order to increase revenue and 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. We began to significantly increase our marketing spending late in 2015 and we plan to continue to increase marketing spending in future periods in connection with our efforts to accelerate customer growth.

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 increased our use of order discounts as a marketing tool in recent periods because we believe that this is an effective method of driving transaction activity through our marketplaces. Additionally, 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.

Investment in growth. We have aggressively invested, and intend to continue to invest, in our products and infrastructure to support our growth. We also have invested in business acquisitions to grow our merchant and customer base, expand and advance our product and service 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 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.

Competitive pressure. We face competition from a variety of sources. 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. We also expect to compete against other Internet sites that are focused 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 Goods category has experienced significant revenue growth in recent periods. This


37


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 59.3% , 54.9% and 44.2% for the years ended December 31, 2015 , 2014 and 2013 , respectively. We are generally the merchant of record for transactions in our Goods category in North America and EMEA, and the resulting direct revenue from sales of merchandise inventory to customers through our marketplaces 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 11.5% , 10.9% and 8.7% for the years ended December 31, 2015 , 2014 and 2013 , 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.
During the third quarter of 2015, we began to de-emphasize lower margin product offerings in our Goods category. We expect to continue to focus on improving margins in future periods, both by focusing on higher-margin offerings and also by seeking to bring more third party sellers of merchandise to our marketplace in North America. While we believe that this shift in focus will improve the gross profit margins generated by our Goods category, we expect that it will adversely impact revenue in the near term.

We have undertaken a number of initiatives to reduce our shipping and fulfillment costs in order to improve the margins on direct revenue transactions in our Goods category. For example, we have increased our use of arrangements in which the suppliers of our product offerings ship merchandise directly to our customers. We also continue to refine 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 shipment.

Components of Results of Operations
Third Party and Other Revenue
Third party revenue arises from transactions in which we are acting as a marketing agent by selling vouchers through our online local commerce marketplaces that can be redeemed for goods or services with a third party merchant. Our third party revenue from those transactions is reported on a net basis as the purchase price received from the customer for the voucher, 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. Other revenue primarily consists of commission revenue, payment processing revenue and advertising revenue.

Direct Revenue

Direct revenue arises from transactions in our Goods category in which we sell merchandise inventory directly to customers through our online marketplaces. The direct revenue that we earn from those transactions is reported on a gross basis as the purchase price 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 fulfillment center. 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 attributed 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 consist of compensation expense related to technology support personnel who are responsible for operating and maintaining the infrastructure of our websites. Technology costs within cost of revenue also include amortization expense from customer-facing internal-use software, primarily related to website development.

Marketing


38


Marketing expense consists primarily of online marketing costs, such as search engine marketing, advertising on social
networking sites and affiliate programs and, to a lesser extent, offline marketing costs such as television, radio and print advertising. Additionally, compensation expense for marketing employees is classified within 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. We evaluate marketing expense as a percentage of gross billings and revenue because it gives us an indication of how well our marketing spend is driving gross billings and revenue growth.

Selling, General and Administrative

Selling expenses reported within "Selling, general and administrative" on the consolidated statements of operations consist of sales commissions and other compensation expenses for sales representatives, as well as costs associated with supporting the sales function such as technology, telecommunications and travel. General and administrative expenses include compensation expense for employees involved in customer service, operations and technology and product development, as well as general corporate functions, such as finance, legal and human resources. 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.
Restructuring Charges

Restructuring charges represent severance and benefit costs for workforce reductions, impairments of long-lived assets and other exit costs resulting from our restructuring plan.

Gain on Disposition of Business

Gain (loss) on disposition of business represents gains or losses that result from the disposition of a controlling financial interest in a subsidiary.

Acquisition‑Related Expense (Benefit), Net

Acquisition-related expense (benefit), net includes external transaction costs related to business combinations, primarily consisting of legal and advisory fees, and changes in the fair value of contingent consideration arrangements related to business combinations.

Other Income (Expense), Net
Other income (expense), net includes interest income on our cash and cash equivalents and investments in convertible debt securities, interest expense on capital leases and our revolving credit agreement, gains and losses on equity method and fair value option investments, impairments of investments, and foreign currency transaction gains and losses, primarily resulting from intercompany balances with our subsidiaries that are denominated in foreign currencies.


39


Results of Operations
Comparison of the Years Ended December 31, 2015 and 2014 :
 
 
Year Ended December 31,
 
 
2015
 
2014
 
 
(in thousands)
Revenue:
 
 
 
 
Third party and other
 
$
1,372,533

 
$
1,501,011

Direct
 
1,746,983

 
1,541,112

Total revenue
 
3,119,516

 
3,042,123

Cost of revenue:
 
 
 
 
Third party and other
 
188,932

 
203,058

Direct
 
1,545,519

 
1,373,756

Total cost of revenue
 
1,734,451

 
1,576,814

Gross profit
 
1,385,065

 
1,465,309

Operating expenses:
 
 
 
 
Marketing
 
254,335

 
241,954

Selling, general and administrative
 
1,192,792

 
1,191,385

Restructuring charges
 
29,568

 

Gain on disposition of business
 
(13,710
)
 

Acquisition-related expense (benefit), net
 
1,857

 
1,269

  Total operating expenses
 
1,464,842

 
1,434,608

Income (loss) from operations
 
(79,777
)
 
30,701

Other income (expense), net
 
(28,539
)
 
(33,450
)
Income (loss) from continuing operations before provision (benefit) for income taxes
 
(108,316
)
 
(2,749
)
Provision (benefit) for income taxes
 
(19,145
)
 
15,724

Income (loss) from continuing operations
 
(89,171
)
 
(18,473
)
Income (loss) from discontinued operations, net of tax
 
122,850

 
(45,446
)
Net income (loss)
 
33,679

 
(63,919
)
Net income attributable to noncontrolling interests
 
(13,011
)
 
(9,171
)
Net income (loss) attributable to Groupon, Inc.
 
$
20,668

 
$
(73,090
)



40


Classification of stock-based compensation
Stock-based compensation is classified as follows:
 
 
Year Ended December 31,
 
 
2015
 
2014
 
 
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
 
$
1,734,451

 
$
4,481

 
$
1,576,814

 
$
3,093


 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Marketing
 
$
254,335

 
$
9,043

 
$
241,954

 
$
9,270

Selling, general and administrative
 
1,192,792

 
128,210

 
1,191,385

 
102,927

Restructuring charges
 
29,568

 

 

 

Gain on disposition of business
 
(13,710
)
 

 

 

Acquisition-related expense (benefit), net
 
1,857

 

 
1,269

 

  Total operating expenses
 
$
1,464,842

 
$
137,253

 
$
1,434,608

 
$
112,197

 
 
 
 
 
 
 
 
 
Total other income (expense), net
 
$
(28,539
)
 
$
335

 
$
(33,450
)
 
$

Foreign exchange rate neutral operating results
The effect on our gross billings, revenue, cost of revenue and operating expenses, and income (loss) from operations for the year ended December 31, 2015 from changes in exchange rates versus the U.S. dollar was as follows:
 
 
Year Ended December 31, 2015
 
 
At Avg.
 
Exchange
 
 
 
 
2014
 
Rate Effect
 
As
 
 
Rates  (1)
 
Effect (2)
 
Reported
 
 
(in thousands)
Gross billings
 
$
6,711,274

 
$
(455,734
)
 
$
6,255,540

 
 
 
 
 
 
 
Revenue
 
$
3,315,691

 
$
(196,175
)
 
$
3,119,516

Cost of revenue and operating expenses
 
3,393,404

 
(194,111
)
 
3,199,293

Income (loss) from operations
 
$
(77,713
)
 
$
(2,064
)
 
$
(79,777
)
(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, 2015 and 2014 were as follows:


41


 
Year Ended December 31,
 
2015
 
2014
 
(in thousands)
Gross billings:
 
 
 
Third party
$
4,450,560

 
$
4,670,653

Direct
1,746,983

 
1,541,112

Other
57,997

 
26,067

Total gross billings
$
6,255,540

 
$
6,237,832

Gross billings increased by $17.7 million to $6,255.5 million for the year ended December 31, 2015 , as compared to $6,237.8 million for the year ended December 31, 2014 , due to a $205.9 million increase in gross billings from direct revenue transactions and a $31.9 million increase in other gross billings, partially offset by a $220.1 million decrease in gross billings from third party revenue transactions. The increase in other gross billings was primarily driven by an increase in commission revenue earned when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications. The favorable impact on gross billings from increases in active customers and the volume of transactions, resulting from our global efforts to build our marketplaces and increase our offerings to customers, was offset by the $455.7 million unfavorable impact from year-over-year changes in foreign currency exchange rates. Order discounts increased to $162.9 million for the year ended December 31, 2015 , as compared to $94.4 million in the prior year.
The increase in our gross billings was comprised of a $82.8 million increase in our Goods category and a $2.9 million increase in our Travel category, partially offset by a $68.0 million decrease in our Local category.
Gross Billings by Segment
Gross billings by segment for the years ended December 31, 2015 and 2014 were as follows:
 
 
Year Ended December 31,
 
 
2015
 
% of total
 
2014
 
% of total
 
 
(dollars in thousands)
Gross billings:
 
 
 
 
 
 
 
 
North America
 
$
3,709,797

 
59.3
%
 
$
3,303,479

 
53.0
%
EMEA
 
1,794,354

 
28.7

 
2,046,807

 
32.8

Rest of World
 
751,389

 
12.0

 
887,546

 
14.2

Total gross billings
 
$
6,255,540

 
100.0
%
 
$
6,237,832

 
100.0
%


42


Gross billings by category and segment for the years ended December 31, 2015 and 2014 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,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Local (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third party and other
$
2,024,698

 
$
1,864,141

 
$
796,136

 
$
950,141

 
$
376,540

 
$
451,090

 
$
3,197,374

 
$
3,265,372

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Travel:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third party
390,776

 
336,898

 
249,361

 
285,978

 
120,287

 
134,626

 
760,424

 
757,502

Total services
2,415,474

 
2,201,039

 
1,045,497

 
1,236,119

 
496,827

 
585,716

 
3,957,798

 
4,022,874

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third party
36,775

 
27,527

 
286,487

 
368,344

 
227,497

 
277,975

 
550,759

 
673,846

Direct
1,257,548

 
1,074,913

 
462,370

 
442,344

 
27,065

 
23,855

 
1,746,983

 
1,541,112

Total
1,294,323

 
1,102,440

 
748,857

 
810,688

 
254,562

 
301,830

 
2,297,742

 
2,214,958

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total gross billings
$
3,709,797

 
$
3,303,479

 
$
1,794,354

 
$
2,046,807

 
$
751,389

 
$
887,546

 
$
6,255,540

 
$
6,237,832

(1)
Includes gross billings from deals with local and national merchants, and through local events.
North America
North America segment gross billings increased by $406.3 million to $3,709.8 million for the year ended December 31, 2015 , as compared to $3,303.5 million for the year ended December 31, 2014 . The increase in gross billings was comprised of a $191.9 million increase in our Goods category, a $160.6 million increase in our Local category and a $53.9 million increase in our Travel category. The increase in gross billings in the North America segment resulted from an increase in active customers, units sold and a higher 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 offerings 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 $125.2 million for the year ended December 31, 2015 , as compared to $69.5 million in the prior year.
EMEA
EMEA segment gross billings decreased by $252.5 million to $1,794.4 million for the year ended December 31, 2015 , as compared to $2,046.8 million for the year ended December 31, 2014 . The decrease in gross billings was comprised of a $154.0 million decrease in our Local category, a $61.8 million decrease in our Goods category and a $36.6 million decrease in our Travel category. The decrease in gross billings in EMEA resulted from a $317.6 million unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended December 31, 2015 as compared to the prior year, partially offset by an increase in active customers and units sold.
    Rest of World
Rest of World segment gross billings decreased by $136.2 million to $751.4 million for the year ended December 31, 2015 , as compared to $887.5 million for the year ended December 31, 2014 . The decrease in gross billings was comprised of a $74.6 million decrease in our Local category, a $47.3 million decrease in our Goods category and a $14.3 million decrease in our Travel category. The decrease in gross billings in the Rest of World segment resulted from a $132.7 million unfavorable impact on gross billings from year-over-year changes in foreign exchange rates for the year ended December 31, 2015 as compared to the prior year.
Revenue
Revenue for the years ended December 31, 2015 and 2014 was as follows:


43


 
Year Ended December 31,
 
2015
 
2014
 
(in thousands)
Revenue:
 
 
 
Third party
$
1,314,536

 
$
1,474,944

Direct
1,746,983

 
1,541,112

Other
57,997

 
26,067

Total revenue
$
3,119,516

 
$
3,042,123

Revenue increased by $77.4 million to $3,119.5 million for the year ended December 31, 2015 , as compared to $3,042.1 million for the year ended December 31, 2014 . This increase was attributable to a $205.9 million increase in direct revenue from transactions in our Goods category and a $31.9 million increase in other revenue, partially offset by a $160.4 million decrease in third party revenue. The unfavorable impact on revenue from year-over-year changes in foreign exchange rates for the year ended December 31, 2015 was $ 196.2 million . Excluding the unfavorable impact of year-over-year changes in foreign exchange rates, the overall increase in revenue was also driven by an increase in active customers and volume of transactions. We also increased the number of merchant relationships and the volume of deals we offer to our customers.
Third Party Revenue
Third party revenue decreased by $160.4 million to $1,314.5 million for the year ended December 31, 2015 , as compared to $1,474.9 million for the year ended December 31, 2014 . The decrease in third party revenue is primarily due to a $134.2 million decrease in our Local category, which resulted from a $99.9 million decrease in third party gross billings in our Local category and a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 33.5% for the year ended December 31, 2015 , as compared to 36.6% for the year ended December 31, 2014 . The decrease in third party revenue in the current year was also due to a $25.8 million decrease in our Goods category, which resulted from a $123.1 million decrease in third party gross billings in our Goods category and a reduction in the percentage of gross billings that we retained after deducting the merchant's share to 18.7% for the year ended December 31, 2015 , as compared to 19.1% for the year ended December 31, 2014 .
Direct Revenue
Direct revenue increased by $205.9 million to $1,747.0 million for the year ended December 31, 2015 , as compared to $1,541.1 million for the year ended December 31, 2014 . This increase was primarily due to a $182.6 million increase in direct revenue in our North America segment. 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. 
Other Revenue
Other revenue increased by $31.9 million to $58.0 million for the year ended December 31, 2015 , as compared to $26.1 million for the year ended December 31, 2014 , primarily due to an increase in commission revenue earned when customers make purchases with retailers using digital coupons accessed through our websites and mobile applications.
Revenue by Segment
Revenue by segment for the years ended December 31, 2015 and 2014 was as follows:


44


 
 
Year Ended December 31,
 
 
2015
 
% of Gross Billings
 
% of Total Revenue
 
2014
 
% of Gross Billings
 
% of Total Revenue
 
 
(dollars in thousands)
North America:
 
 
 
 
 
 
 
 
 
 
 
 
Third party and other
 
$
790,194

 
32.2
%
 
25.3
%
 
$
749,548

 
33.6
%
 
24.6
%
Direct
 
1,257,548

 
100.0

 
40.3

 
1,074,913

 
100.0

 
35.4

Total segment revenue
 
2,047,742

 
55.2

 
65.6

 
1,824,461

 
55.2

 
60.0

EMEA:
 
 
 
 
 
 
 
 
 
 
 
 
Third party
 
405,510

 
30.4

 
13.0

 
518,786

 
32.3

 
17.1

Direct
 
462,370

 
100.0

 
14.8

 
442,344

 
100.0

 
14.5

Total segment revenue
 
867,880

 
48.4

 
27.8

 
961,130

 
47.0

 
31.6

Rest of World:
 
 
 
 
 
 
 
 
 
 
 
 
Third party
 
176,829

 
24.4

 
5.7

 
232,677

 
26.9

 
7.6

Direct
 
27,065

 
100.0

 
0.9

 
23,855

 
100.0

 
0.8

Total segment revenue
 
203,894

 
27.1

 
6.6

 
256,532

 
28.9

 
8.4

Total revenue
 
$
3,119,516

 
49.9
%
 
100.0
%
 
$
3,042,123

 
48.8
%
 
100.0
%
Revenue by category and segment for the years ended December 31, 2015 and 2014 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,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Local (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third party and other
$
701,312

 
$
674,605

 
$
302,085

 
$
391,179

 
$
107,381

 
$
147,248

 
$
1,110,778

 
$
1,213,032

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Travel:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third party
81,731

 
68,977

 
53,059

 
63,957

 
24,091

 
26,407

 
158,881

 
159,341

Total services
783,043

 
743,582

 
355,144

 
455,136

 
131,472

 
173,655

 
1,269,659

 
1,372,373

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goods:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third party
7,151

 
5,966

 
50,366

 
63,650

 
45,357

 
59,022

 
102,874

 
128,638

Direct revenue
1,257,548

 
1,074,913

 
462,370

 
442,344

 
27,065

 
23,855

 
1,746,983

 
1,541,112

Total
1,264,699

 
1,080,879

 
512,736

 
505,994

 
72,422

 
82,877

 
1,849,857