Author: Serkadis

Groupon Earnings Disappoint, Stock Down 28%

Groupon reported its Q4 and fiscal year 2012 earnings on Wednesday afternoon, sending stock plummeting as results missed Wall Street estimates.

The company posted a net loss of $81.1 million for the quarter, though revenue was up 30% at $638.3 million.

Late last year, Groupon CEO Andrew Mason’s job came into question, and now reports are questioning how long he’ll remain in the position again. Groupon hasn’t commented on this since the new earnings release, but the Wall Street Journal reports:

As Groupon’s stock continues to falter, Mr. Mason will likely struggle to maintain the confidence of Groupon’s board members, particularly its chairman and largest shareholder, Eric Lefkofsky, who has sparred with Mr. Mason in the past, these people have said.

In pre-market trading Groupon is at $4.30 (-1.68‎, -28.12%‎).

Here’s the release in its entirety:

CHICAGO–(BUSINESS WIRE)–Groupon, Inc. (NASDAQ: GRPN) today announced financial results for the quarter and fiscal year ended December 31, 2012.

“Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities.”

Gross billings, which reflect the total dollar value of customer purchases of goods and services, excluding any applicable taxes and net of estimated refunds, increased 24% year-over-year to $1.52 billion in the fourth quarter 2012, compared with $1.23 billion in the fourth quarter 2011. Excluding the $21.0 million unfavorable impact from year-over-year changes in foreign exchange rates, gross billings growth was 25% compared with fourth quarter 2011.

Revenue increased 30% year-over-year to $638.3 million in the fourth quarter 2012, compared with $492.2 million in the fourth quarter 2011. Excluding the $7.7 million unfavorable impact from year-over-year changes in foreign exchange rates, revenue growth was 31% compared with fourth quarter 2011. Growth was driven by an increase in direct revenue, which grew 1549% year-over-year to $225.2 million in the fourth quarter 2012, compared with $13.7 million in the fourth quarter 2011.

Operating loss was $12.9 million in the fourth quarter 2012, including stock-based compensation and acquisition-related expenses of $26.6 million, and depreciation and amortization of $16.0 million. This compares with an operating loss of $15.0 million in the fourth quarter 2011, which included stock-based compensation and acquisition-related expenses of $32.9 million, and depreciation and amortization of $9.3 million. Year-over-year changes in foreign exchange rates had a $0.1 million favorable impact on operating results.

“Record billings growth this quarter is a clear signal that customers love Groupons,” said Andrew Mason, CEO of Groupon. “We will continue to invest in growth through 2013 as we see new opportunities to give our customers what they want.”

Operating cash flow decreased 61% year-over-year to $65.7 million, compared with $169.1 million in the fourth quarter 2011. Free cash flow, a non-GAAP financial measure calculated as operating cash flow less capital expenditures, decreased 83% year-over-year to $25.7 million, compared with $155.1 million in the fourth quarter 2011. At the end of the quarter, Groupon had $1.2 billion in cash and cash equivalents and no long-term borrowings.

Fourth quarter 2012 net loss attributable to common stockholders was $81.1 million, or $0.12 per share, reflecting stock-based compensation and acquisition-related expenses of $26.6 million and share count of 655.7 million. Fourth quarter 2012 results included a pre-tax non-operating loss of $50.6 million ($45.5 million after tax) related to the impairment of a cost method investment in China.

Net loss attributable to common stockholders increased by $15.7 million year-over-year, from a loss of $65.4 million, or $0.12 per share in the fourth quarter 2011, including stock-based compensation and acquisition-related expenses of $32.9 million.

Full Year 2012

Gross billings increased 35% year-over-year to $5.38 billion in 2012, compared with $3.99 billion in 2011. Excluding the $183.5 million unfavorable impact from year-over-year changes in foreign exchange rates, gross billings growth was 40% compared with 2011.

Revenue increased 45% year-over-year to $2.33 billion in 2012, compared with $1.61 billion in 2011. Excluding the $74.1 million unfavorable impact from year-over-year changes in foreign exchange rates, revenue growth was 50% compared with 2011. Growth was driven by an increase in direct revenue, which grew 2083% to $454.7 million in 2012, compared with $20.8 million in 2011.

Operating income was $98.7 million in 2012, including stock-based compensation and acquisition-related expenses of $105.0 million, and depreciation and amortization of $55.8 million. This compares with an operating loss of $233.4 million in 2011, which included stock-based compensation and acquisition-related expenses of $89.1 million, and depreciation and amortization of $32.1 million. Year-over-year changes in foreign exchange rates had a $7.4 million unfavorable impact on operating income.

Operating cash flow decreased 8% year-over-year to $266.8 million, compared with $290.4 million in 2011. Free cash flow decreased 31% year-over-year to $171.0 million, compared with $246.6 million in 2011.

Full year 2012 net loss attributable to common stockholders was $67.4 million, or $0.10 per share, reflecting stock-based compensation and acquisition-related expenses of $105.0 million and share count of 650.2 million.

Net loss attributable to common stockholders improved by $306.1 million year-over-year, from a loss of $373.5 million, or $1.03 per share in 2011, including stock-based compensation and acquisition-related expenses of $89.1 million.

Groupon, Inc.

Summary Consolidated and Segment Results

(dollars in thousands, except share and per share data)

(unaudited)

Three Months Ended Y/Y % Year Ended Y/Y %

December 31, Growth December 31, Growth

2012 2011 Y/Y %
Growth FX Effect ⁽²⁾ excluding
FX⁽²⁾ 2012 2011 Y/Y %
Growth FX Effect ⁽²⁾ excluding
FX⁽²⁾

Gross Billings ⁽¹⁾

North America $ 718,952 $ 475,807 51.1 % $ (2,569 ) 51.6 % $ 2,373,153 $ 1,561,927 51.9 % $ (2,780 ) 52.1 %

International 801,500 755,061 6.2 % (18,451 ) 8.6 % 3,007,031 2,423,574 24.1 % (180,739 ) 31.5 %

Consolidated Billings $ 1,520,452 $ 1,230,868 23.5 % $ (21,020 ) 25.2 % $ 5,380,184 $ 3,985,501 35.0 % $ (183,519 ) 39.6 %

Revenue

North America $ 375,351 $ 179,638 108.9 % $ (1,082 ) 109.6 % $ 1,165,700 $ 634,980 83.6 % $ (1,156 ) 83.8 %

International 262,951 312,526 (15.9 ) % (6,629 ) (13.7 ) % 1,168,772 975,450 19.8 % (72,960 ) 27.3 %

Consolidated revenue $ 638,302 $ 492,164 29.7 % $ (7,711 ) 31.3 % $ 2,334,472 $ 1,610,430 45.0 % $ (74,116 ) 49.6 %

Operating (loss) income $ (12,861 ) $ (14,972 ) 14.1 % $ 135 13.2 % $ 98,701 $ (233,386 ) N/A $ (7,401 ) N/A

Net loss attributable to common stockholders $ (81,089 ) $ (65,379 ) (24.0 ) % $ 1,102 (25.7 ) % $ (67,377 ) $ (373,494 ) 82.0 % $ (9,283 ) 84.4 %

Net loss per share

Basic $ (0.12 ) $ (0.12 ) $ (0.10 ) $ (1.03 )

Diluted $ (0.12 ) $ (0.12 ) $ (0.10 ) $ (1.03 )

Weighted average basic shares outstanding 655,678,123 528,421,712 650,214,119 362,261,324

Weighted average diluted shares outstanding 655,678,123 528,421,712 650,214,119 362,261,324

(1) Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Includes direct billings and third party and other billings.

(2) Represents change in financial measures that would have resulted had average exchange rates in the reporting period been the same as those in effect in the three months and year ended December 31, 2011.

Highlights

Largest sequential gross billings increase in Groupon history. All categories contributed to the biggest sequential increase in platform growth on an absolute dollar basis in Groupon’s history.

Unit milestone. The Company surpassed the 50 million unit mark for the first time in the fourth quarter 2012. Consolidated units, defined as vouchers and products ordered before cancellations and refunds, grew 21% year-over-year.

Seasonal strength in Groupon Goods. After a successful holiday season, Goods has now reached an annual run rate of about $2.0 billion in global billings, just five quarters after its launch.

Growing merchant selection and quality. As of the end of the fourth quarter, the number of active deals in North America increased almost 300% year-over-year to nearly 37,000.

Continued customer acquisition efficiencies. Marketing expense per new customer improved 61% year-over-year in the fourth quarter 2012, enabling the reduction of overall marketing spend by 61% compared with the fourth quarter 2011. As of December 31, 2012, Groupon had 41.0 million active customers, an increase of 22% year-over-year, with gross customer additions partially offset by higher customer inactivations.

Substantial growth in mobile transaction activity. In January 2013, nearly 40% of North American transactions were completed on mobile devices, an increase of 44% compared with January 2012. This compares with about one third of transactions completed on mobile devices in October 2012.

Launch of merchant services in 2012. Groupon launched a number of services in 2012 to strengthen relationships with local businesses, including Breadcrumb and Payments.

Outlook

Revenue for the first quarter 2013 is expected to be between $560 million and $610 million, an increase of between 0% and 9% compared with first quarter 2012.

Operating (loss) income for the first quarter 2013 is expected to be between $(10) million and $10 million, compared with $39.6 million in the first quarter 2012. This outlook includes $30 million of stock-based compensation, and assumes no acquisitions or investments, or material changes in foreign exchange rates.

For the full year 2013, operating income is expected to increase compared with 2012.

A conference call will be webcast live today at 4:00 p.m. CT / 5:00 p.m. ET, and will be available on Groupon’s investor relations website athttp://investor.groupon.com. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results.

Non-GAAP Financial Measures

In addition to financial results reported in accordance with generally accepted accounting principles (GAAP), we have provided the following non-GAAP financial measures in this release and the accompanying tables: foreign exchange rate neutral operating results, free cash flow and consolidated operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net. These non-GAAP financial measures are presented to aid investors in better understanding Groupon’s performance. However, these measures are not intended to be a substitute for those reported in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other companies.

Foreign exchange rate neutral operating results show our current period operating results as if foreign currency exchange rates had remained the same as those in effect in the comparable period. These measures are intended to facilitate comparisons to our historical performance. For a reconciliation of foreign exchange rate neutral operating results to our GAAP operating results, see “Reconciliation of Foreign Exchange Rate Neutral Operating Results to U.S. GAAP Operating Results” and “Supplemental Financial Information and Business Metrics” included in the tables accompanying this release.

Free cash flow is a non-GAAP measure that comprises net cash provided by operating activities less purchases of property and equipment and capitalized software. We use free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe that it typically represents a more useful measure of cash flows because purchases of fixed assets, software developed for internal use and website development costs are necessary components of our ongoing operations. Free cash flow is not intended to represent the total increase or decrease in Groupon’s cash balance for the applicable period. For a reconciliation of free cash flow to cash flow from operations, see ”Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities” included in the tables accompanying this release.

Consolidated operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net is a non-GAAP measure that comprises the consolidated total of the segment operating income (loss) of our two segments, North America and International. Stock-based compensation expense and acquisition-related expense (benefit), net are excluded from segment operating income (loss) that we report under GAAP for our segments. Stock-based compensation expense is primarily a non-cash item. Acquisition-related expense (benefit), net represents the change in the fair value of contingent consideration arrangements related to business combinations. We use consolidated operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net to allocate resources and evaluate performance internally. For a reconciliation of consolidated operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), net to consolidated operating income (loss), see ”Supplemental Financial Information and Business Metrics” included in the tables accompanying this release.

Note on Forward Looking Statements

The statements contained in this presentation that refer to plans and expectations for the next quarter or the future are forward- looking statements that involve a number of risks and uncertainties, and actual results could differ materially from those discussed. The risks and uncertainties that could cause our results to differ materially from those included in the forward-looking statements include, but are not limited to, volatility in our revenue and operating results; risks related to our business strategy; responding to changes in the market; effectively dealing with challenges arising from our international operations; retaining existing customers and adding new customers; retaining existing merchant partners and adding new merchant partners; incurring expenses as we expand our business; competing against smaller competitors and competitors with more financial resources than us; maintaining favorable terms with our business partners; maintaining a strong brand; managing inventory and order fulfillment; integrating our technology platforms; managing refund risks; retaining our executive team; litigation; regulations, including the CARD Act and regulation of the Internet; tax liabilities; tax legislation; maintaining our information technology infrastructure; security breaches; protecting our intellectual property; handling acquisitions, joint ventures and strategic investments effectively; seasonality; payment-related risks; customer and merchant partner fraud; global economic uncertainty; compliance with rules and regulations associated with being a public company; and our ability to raise capital if necessary. We urge you to refer to the factors included under the headings ”Risk Factors” and ”Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, copies of which may be obtained by visiting the company’s Investor Relations web site at http://investor.groupon.com or the SEC’s web site at www.sec.gov. Groupon’s actual results could differ materially from those predicted or implied and reported results should not be considered an indication of future performance.

You should not rely upon forward-looking statements as predictions of future events. Although Groupon believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither the company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements reflect Groupon’s expectations as of February 27, 2013. Groupon undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in its expectations.

Groupon encourages investors to use its investor relations website as a way of easily finding information about the company. Groupon promptly makes available on this website, free of charge, the reports that the company files or furnishes with the SEC, corporate governance information (including Groupon’s Global Code of Conduct), and select press releases and social media postings.

Groupon, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended
December 31, Year Ended
December 31,

2012 2011 2012 2011

Operating activities

Net loss $ (80,047 ) $ (59,679 ) $ (51,031 ) $ (297,762 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 15,965 9,301 55,801 32,055

Stock-based compensation 26,411 32,668 104,117 93,590

Deferred income taxes (17,259 ) 31,601 (7,651 ) 32,203

Excess tax benefits on stock-based compensation (2,403 ) 1,145 (27,023 ) (10,178 )

Loss on equity method investees 1,231 6,678 9,925 26,652

Acquisition-related expense (benefit), net 153 256 897 (4,537 )

Gain on return of common stock – – – (4,916 )

Gain on E-Commerce transaction – – (56,032 ) –

Impairment of cost method investment 50,553 – 50,553 –

Change in assets and liabilities, net of acquisitions:

Restricted cash (2,517 ) (4,378 ) (4,372 ) (12,519 )

Accounts receivable 12,723 (686 ) 10,534 (70,376 )

Prepaid expenses and other current assets (45,922 ) 4,731 (70,859 ) (36,292 )

Accounts payable 5,537 927 18,711 (20,997 )

Accrued merchant and supplier payables 96,029 65,236 149,918 380,108

Accrued expenses and other current liabilities (20,268 ) 80,164 47,742 189,127

Other, net 25,531 1,113 35,604 (5,711 )

Net cash provided by operating activities 65,717 169,077 266,834 290,447

Net cash used in investing activities (52,753 ) (34,907 ) (194,979 ) (147,433 )

Net cash (used in) provided by financing activities (6,495 ) 746,913 12,095 867,205

Effect of exchange rate changes on cash and cash equivalents 1,809 (2,083 ) 2,404 (6,117 )

Net increase in cash and cash equivalents 8,278 879,000 86,354 1,004,102

Cash and cash equivalents, beginning of period 1,201,011 243,935 1,122,935 118,833

Cash and cash equivalents, end of the period $ 1,209,289 $ 1,122,935 $ 1,209,289 $ 1,122,935

Groupon, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Three Months Ended December 31, Year Ended December 31,

2012 2011 2012 2011

Revenue:

Third party and other revenue $ 413,127 $ 478,510 $ 1,879,729 $ 1,589,604

Direct revenue 225,175 13,654 454,743 20,826

Total revenue 638,302 492,164 2,334,472 1,610,430

Cost of revenue:

Third party and other revenue 63,905 86,882 297,739 243,789

Direct revenue 218,567 9,383 421,201 15,090

Total cost of revenue 282,472 96,265 718,940 258,879

Gross Profit 355,830 395,899 1,615,532 1,351,551

Operating expenses:

Marketing 60,913 155,299 336,854 768,472

Selling, general and administrative 307,625 255,316 1,179,080 821,002

Acquisition-related expense (benefit), net 153 256 897 (4,537 )

Total operating expenses 368,691 410,871 1,516,831 1,584,937

(Loss) income from operations (12,861 ) (14,972 ) 98,701 (233,386 )

Interest and other (expense) income, net (48,279 ) (3,835 ) 6,166 5,973

Loss on equity method investees (1,231 ) (6,678 ) (9,925 ) (26,652 )

(Loss) income before provision for income taxes (62,371 ) (25,485 ) 94,942 (254,065 )

Provision for income taxes 17,676 34,194 145,973 43,697

Net loss (80,047 ) (59,679 ) (51,031 ) (297,762 )

Less: Net (income) loss attributable to noncontrolling interests (936 ) (5,267 ) (3,742 ) 18,335

Net loss attributable to Groupon, Inc. (80,983 ) (64,946 ) (54,773 ) (279,427 )

Redemption of preferred stock in excess of carrying value – – – (34,327 )

Adjustment of redeemable noncontrolling interests to redemption value (106 ) (433 ) (12,604 ) (59,740 )

Net loss attributable to common stockholders $ (81,089 ) $ (65,379 ) $ (67,377 ) $ (373,494 )

Net loss per share

Basic $ (0.12 ) $ (0.12 ) $ (0.10 ) $ (1.03 )

Diluted $ (0.12 ) $ (0.12 ) $ (0.10 ) $ (1.03 )

Weighted average number of shares outstanding

Basic 655,678,123 528,421,712 650,214,119 362,261,324

Diluted 655,678,123 528,421,712 650,214,119 362,261,324

Groupon, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

December 31,

2012 2011

Assets

Current assets:

Cash and cash equivalents $ 1,209,289 $ 1,122,935

Accounts receivable, net 96,713 108,747

Deferred income taxes 31,211 19,243

Prepaid expenses and other current assets 150,573 72,402

Total current assets 1,487,786 1,323,327

Property, equipment and software, net 121,072 51,800

Goodwill 206,684 166,903

Intangible assets, net 42,597 45,667

Investments 84,209 50,604

Deferred income taxes, non-current 29,916 46,104

Other non-current assets 59,210 90,071

Total Assets $ 2,031,474 $ 1,774,476

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable $ 59,865 $ 40,918

Accrued merchant and supplier payables 671,305 520,723

Accrued expenses 246,924 212,007

Deferred income taxes 53,700 76,841

Other current liabilities 136,647 144,673

Total current liabilities 1,168,441 995,162

Deferred income taxes, non-current 20,860 7,428

Other non-current liabilities 100,072 70,766

Total Liabilities 1,289,373 1,073,356

Commitments and contingencies

Redeemable noncontrolling interests – 1,653

Stockholders’ Equity

Class A common stock, par value $0.0001 per share, 2,000,000,000 shares authorized, 654,523,706 and 641,745,225 shares issued and outstanding at December 31, 2012 and 2011, respectively 65 64

Class B common stock, par value $0.0001 per share, 10,000,000 shares authorized, 2,399,976 shares issued and outstanding at December 31, 2012 and 2011 – –

Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized, no shares issued and outstanding at December 31, 2012 and 2011 – –

Additional paid-in capital 1,485,006 1,388,253

Accumulated deficit (753,477 ) (698,704 )

Accumulated other comprehensive income 12,446 12,928

Total Groupon, Inc. Stockholders’ Equity 744,040 702,541

Noncontrolling interests (1,939 ) (3,074 )

Total Equity 742,101 699,467

Total Liabilities and Equity $ 2,031,474 $ 1,774,476

Groupon, Inc.

Segment Information

(in thousands)

(unaudited)

Three Months Ended December 31, Year Ended December 31,

2012 2011 2012 2011

North America

Gross Billings⁽¹⁾ $ 718,952 $ 475,807 $ 2,373,153 $ 1,561,927

Revenue $ 375,351 $ 179,638 $ 1,165,700 $ 634,980

Segment cost of revenue and operating expenses⁽²⁾⁽³⁾ 358,319 161,399 1,025,974 630,184

Segment operating income⁽³⁾ $ 17,032 $ 18,239 $ 139,726 $ 4,796

Segment income as a percent of segment revenue 4.5 % 10.2 % 12.0 % 0.8 %

International

Gross Billings ⁽¹⁾ $ 801,500 $ 755,061 $ 3,007,031 $ 2,423,574

Revenue $ 262,951 $ 312,526 $ 1,168,772 $ 975,450

Segment cost of revenue and operating expenses⁽²⁾⁽³⁾ 266,280 312,813 1,104,783 1,124,579

Segment operating (loss) income⁽³⁾ $ (3,329 ) $ (287 ) $ 63,989 $ (149,129 )

Segment (loss) income as a percent of segment revenue (1.3 ) % (0.1 ) % 5.5 % (15.3 ) %

Consolidated

Gross Billings ⁽¹⁾ $ 1,520,452 $ 1,230,868 $ 5,380,184 $ 3,985,501

Revenue $ 638,302 $ 492,164 $ 2,334,472 $ 1,610,430

Segment cost of revenue and operating expenses⁽²⁾ 624,599 474,212 2,130,757 1,754,763

Segment operating income (loss) $ 13,703 $ 17,952 $ 203,715 $ (144,333 )

Segment income (loss) as a percent of segment revenue 2.1 % 3.6 % 8.7 % (9.0 ) %

Stock-based compensation 26,411 32,668 104,117 93,590

Acquisition-related expense (benefit), net 153 256 897 (4,537 )

Operating (loss) income (12,861 ) (14,972 ) 98,701 (233,386 )

Interest and other expense (income), net 48,279 3,835 (6,166 ) (5,973 )

Loss on equity method investees 1,231 6,678 9,925 26,652

(Loss) income before provision for income taxes (62,371 ) (25,485 ) 94,942 (254,065 )

Provision for income taxes 17,676 34,194 145,973 43,697

Net loss $ (80,047 ) $ (59,679 ) $ (51,031 ) $ (297,762 )

(1) Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Includes direct billings and third party and other billings.

(2) Represents cost of revenue and operating expenses, excluding stock-based compensation and acquisition-related expense (benefit), net.

(3) We record intercompany cross-charges every period for services provided by the United States to our international subsidiaries. We updated our intercompany allocations for those charges during the fourth quarter of 2012, which resulted in a one-time $8.5 million decrease to International Segment operating expenses (reduction to International Segment operating loss) and a corresponding increase to North America Segment operating expenses (reduction to North America Segment operating income).

Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities

(in thousands)

(unaudited)

The following is a reconciliation of free cash flow to the most comparable U.S. GAAP measure, “Net cash provided by operating activities,” for the three months and years ended December 31, 2012 and 2011, respectively:

Three Months Ended December 31, Year Ended December 31,

2012 2011 2012 2011

Net cash provided by operating activities $ 65,717 $ 169,077 $ 266,834 $ 290,447

Purchases of property and equipment and capitalized software (40,034 ) (13,986 ) (95,836 ) (43,811 )

Free cash flow $ 25,683 $ 155,091 $ 170,998 $ 246,636

Net cash used in investing activities $ (52,753 ) $ (34,907 ) $ (194,979 ) $ (147,433 )

Net cash (used in) provided by financing activities $ (6,495 ) $ 746,913 $ 12,095 $ 867,205

Reconciliation of Foreign Exchange Rate Neutral Operating Results to Revenue and (Loss) Income from Operations

(in thousands)

(unaudited)

The following is a reconciliation of foreign exchange rate neutral operating results to the most comparable U.S. GAAP measures, “Revenue” and “(Loss) Income from operations,” for the three months and year ended December 31, 2012:

The effect on the Company’s consolidated statements of operations from changes in exchange rates versus the U.S. Dollar for the three months ended December 31, 2012 are as follows:

Three Months Ended December 31, 2012 Three Months Ended December 31, 2012

At Avg. Exchange At Avg. Exchange

Q4 2011
Rates ⁽¹⁾ Rate
Effect ⁽²⁾ As
Reported Q3 2012
Rates ⁽³⁾ Rate
Effect ⁽²⁾ As
Reported

Revenue $ 646,013 $ (7,711 ) $ 638,302 $ 634,734 $ 3,568 $ 638,302

Loss from operations $ (12,996 ) $ 135 $ (12,861 ) $ (12,075 ) $ (786 ) $ (12,861 )

The effect on the Company’s consolidated statements of operations from changes in exchange rates versus the U.S. Dollar for the year ended December 31, 2012 are as follows:

Year Ended December 31, 2012 Year Ended December 31, 2012

At Avg. Exchange At Avg. Exchange

2011
Rates ⁽¹⁾ Rate
Effect ⁽²⁾ As
Reported Q4’11 – Q3’12
Rates ⁽³⁾ Rate
Effect ⁽²⁾ As
Reported

Revenue $ 2,408,588 $ (74,116 ) $ 2,334,472 $ 2,344,952 $ (10,480 ) $ 2,334,472

Income from operations $ 106,102 $ (7,401 ) $ 98,701 $ 105,467 $ (6,766 ) $ 98,701

(1) Represents the outcome that would have resulted had average exchange rates in the reported period been the same as those in effect during the three months and year ended December 31, 2011.

(2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable period.

(3) Represents the outcome that would have resulted had average exchange rates in the reported period been the same as those in effect during the three and twelve months ended September 30, 2012.

Supplemental Financial Information and Business Metrics⁽¹³⁾

(in thousands, except per share and headcount data and TTM

Gross Billings / Average Active Customer)

(unaudited)

Q1 2011 ⁽⁸⁾ Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012

Segments

North America Segment:

Gross Billings ⁽¹⁾ $ 315,152 $ 369,990 $ 400,978 $ 475,807 $ 553,557 $ 548,275 $ 552,369 $ 718,952

Year-over-year growth 610 % 359 % 204 % 118 % 76 % 48 % 38 % 51 %

% of Consolidated Gross Billings 47 % 40 % 35 % 39 % 41 % 43 % 45 % 47 %

Gross Billings ⁽¹⁾ Trailing Twelve Months (TTM) $ 745,772 $ 1,035,183 $ 1,304,128 $ 1,561,927 $ 1,800,332 $ 1,978,617 $ 2,130,008 $ 2,373,153

Revenue:

Third Party and Other Revenue⁽²⁾ $ 136,612 $ 157,205 $ 161,525 $ 179,638 $ 230,984 $ 207,119 $ 158,545 $ 165,776

Direct Revenue⁽²⁾ – – – – 7,581 53,062 133,058 209,575

Total Revenue $ 136,612 $ 157,205 $ 161,525 $ 179,638 $ 238,565 $ 260,181 $ 291,603 $ 375,351

Year-over-year growth 574 % 341 % 188 % 103 % 75 % 66 % 81 % 109 %

% of Consolidated Revenue 46 % 40 % 38 % 36 % 43 % 46 % 51 % 59 %

Revenue TTM $ 316,752 $ 438,305 $ 543,705 $ 634,980 $ 736,933 $ 839,909 $ 969,987 $ 1,165,700

Cost of Revenue:

Third Party and Other Cost of Revenue ⁽³⁾ $ 25,050 $ 32,169 $ 31,316 $ 51,419 $ 62,580 $ 40,155 $ 15,475 $ 27,002

Direct Cost of Revenue⁽³⁾ – – – – 6,671 46,159 115,560 196,789

Total Cost of Revenue $ 25,050 $ 32,169 $ 31,316 $ 51,419 $ 69,251 $ 86,314 $ 131,035 $ 223,791

% of North America Total Revenue 18 % 20 % 19 % 29 % 29 % 33 % 45 % 60 %

Gross Profit

Third Party and Other $ 111,562 $ 125,036 $ 130,209 $ 128,219 $ 168,404 $ 166,964 $ 143,070 $ 138,774

Direct – – – – 910 6,903 17,498 12,786

Total $ 111,562 $ 125,036 $ 130,209 $ 128,219 $ 169,314 $ 173,867 $ 160,568 $ 151,560

% of North America Total Revenue 82 % 80 % 81 % 71 % 71 % 67 % 55 % 40 %

Operating (Loss) Income Excl Stock-Based Compensation (SBC), Acquisition-Related Expenses $ (21,778 ) $ (10,501 ) $ 18,836 $ 18,239 $ 40,172 $ 43,429 $ 39,093 $ 17,032

Year-over-year growth N/A (2,678 ) % 496 % N/A N/A N/A 108 % (7 ) %

% of Consolidated Operating (Loss) Income Excl SBC, Acq-Related 22 % 17 % 1,113 % 102 % 59 % 60 % 77 % 124 %

Operating Margin Excl SBC, Acq-Related (% of North America Total revenue) (15.9 ) % (6.7 ) % 11.7 % 10.2 % 16.8 % 16.7 % 13.4 % 4.5 %

Year-over-year growth (bps) (5,879 ) (562 ) 603 3,494 3,278 2,337 170 (570 )

Operating (Loss) Income TTM Excl SBC, Acq-Related $ (40,901 ) $ (51,024 ) $ (35,348 ) $ 4,796 $ 66,746 $ 120,676 $ 140,933 $ 139,726

Operating Margin TTM Excl SBC, Acq-Related (% of North America Total TTM revenue) (12.9 ) % (11.6 ) % (6.5 ) % 0.8 % 9.1 % 14.4 % 14.5 % 12.0 %

Year-over-year growth (bps) (3,604 ) (2,266 ) (1,467 ) 596 2,197 2,601 2,100 1,120

International Segment:

Gross Billings ⁽¹⁾ $ 353,022 $ 559,259 $ 756,232 $ 755,061 $ 801,243 $ 738,401 $ 665,887 $ 801,500

Year-over-year growth N/A 5,057 % 1,115 % 283 % 127 % 32 % (12 ) % 6 %

Year-over-year growth, excluding FX⁽⁴⁾ N/A 4,587 % 1,021 % 287 % 138 % 45 % (4 ) % 9 %

% of Consolidated Gross Billings 53 % 60 % 65 % 61 % 59 % 57 % 55 % 53 %

Gross Billings ⁽¹⁾ TTM $ 623,367 $ 1,171,781 $ 1,865,774 $ 2,423,574 $ 2,871,795 $ 3,050,937 $ 2,960,592 $ 3,007,031

Revenue:

Third Party and Other Revenue⁽²⁾ $ 158,911 $ 235,377 $ 261,464 $ 298,872 $ 309,069 $ 295,866 $ 265,019 $ 247,351

Direct Revenue⁽²⁾ – – 7,172 13,654 11,649 12,288 11,930 15,600

Total Revenue $ 158,911 $ 235,377 $ 268,636 $ 312,526 $ 320,718 $ 308,154 $ 276,949 $ 262,951

Year-over-year growth N/A 7,709 % 947 % 273 % 102 % 31 % 3 % (16 ) %

Year-over-year growth, excluding FX ⁽⁴⁾ N/A 7,013 % 868 % 276 % 112 % 44 % 13 % (14 ) %

% of Consolidated Revenue 54 % 60 % 62 % 64 % 57 % 54 % 49 % 41 %

Revenue TTM $ 271,440 $ 503,803 $ 746,785 $ 975,450 $ 1,137,257 $ 1,210,034 $ 1,218,347 $ 1,168,772

Cost of Revenue:

Third Party and Other Cost of Revenue ⁽³⁾ $ 14,715 $ 22,634 $ 31,023 $ 35,463 $ 40,049 $ 36,877 $ 38,698 $ 36,903

Direct Cost of Revenue ⁽³⁾ – – 5,707 9,383 10,198 11,993 12,053 21,778

Total Cost of Revenue $ 14,715 $ 22,634 $ 36,730 $ 44,846 $ 50,247 $ 48,870 $ 50,751 $ 58,681

% of International Total Revenue 9 % 10 % 14 % 14 % 16 % 16 % 18 % 22 %

Gross Profit

Third Party and Other $ 144,196 $ 212,743 $ 230,441 $ 263,409 $ 269,020 $ 258,989 $ 226,321 $ 210,448

Direct – – 1,465 4,271 1,451 295 (123 ) (6,178 )

Total $ 144,196 $ 212,743 $ 231,906 $ 267,680 $ 270,471 $ 259,284 $ 226,198 $ 204,270

% of International Total Revenue 91 % 90 % 86 % 86 % 84 % 84 % 82 % 78 %

Operating (Loss) Income Excl SBC, Acq-Related $ (76,506 ) $ (51,808 ) $ (20,528 ) $ (287 ) $ 27,418 $ 28,505 $ 11,395 $ (3,329 )

Year-over-year growth N/A (125 ) % 21 % 100 % N/A 155 N/A 1060 %

% of Consolidated Operating (Loss) Income Excl SBC, Acq-Related 78 % 83 % (1,213 ) % (2 ) % 41 % 40 % 23 % (24 ) %

Operating Margin Excl SBC, Acq-Related (% of International Total revenue) (48.1 ) % (22.0 ) % (7.6 ) % (0.1 ) % 8.5 % 9.3 % 4.1 % (1.3 ) %

Year-over-year growth (bps) N/A 74,265 9,392 14,474 5,669 3,126 1,170 (120 )

Operating (Loss) Income TTM Excl SBC, Acq-Related $ (247,063 ) $ (275,824 ) $ (270,298 ) $ (149,129 ) $ (45,205 ) $ 35,108 $ 67,031 $ 63,989

Operating Margin TTM Excl SBC, Acq-Related (% of International Total TTM revenue) (91.0 ) % (54.7 ) % (36.2 ) % (15.3 ) % (4.0 ) % 2.9 % 5.5 % 5.5 %

Year-over-year growth (bps) N/A 70,992 13,508 13,628 8,704 5,765 4,170 2,080

Consolidated Results of Operations

Gross Billings ⁽¹⁾ $ 668,174 $ 929,249 $ 1,157,210 $ 1,230,868 $ 1,354,800 $ 1,286,676 $ 1,218,256 $ 1,520,452

Year-over-year growth 1,405 % 916 % 496 % 196 % 103 % 38 % 5 % 24 %

Year-over-year growth, excluding FX ⁽⁴⁾ 1,378 % 859 % 465 % 198 % 108 % 47 % 11 % 25 %

Gross Billings ⁽¹⁾ (TTM) $ 1,369,139 $ 2,206,964 $ 3,169,902 $ 3,985,501 $ 4,672,127 $ 5,029,554 $ 5,090,600 $ 5,380,184

Year-over-year growth 1,651 % 1,227 % 804 % 435 % 241 % 128 % 61 % 35 %

Revenue:

Third Party and Other Revenue ⁽²⁾ $ 295,523 $ 392,582 $ 422,989 $ 478,510 $ 540,053 $ 502,985 $ 423,564 $ 413,127

Direct Revenue ⁽²⁾ – – 7,172 13,654 19,230 65,350 144,988 225,175

Total Consolidated Revenue $ 295,523 $ 392,582 $ 430,161 $ 492,164 $ 559,283 $ 568,335 $ 568,552 $ 638,302

Year-over-year growth 1,358 % 915 % 426 % 186 % 89 % 45 % 32 % 30 %

Year-over-year growth, excluding FX ⁽⁴⁾ 1,332 % 858 % 401 % 188 % 95 % 53 % 38 % 31 %

Total Consolidated Revenue TTMYear-over-year growth, excluding FX (1) $ 588,192 $ 942,108 $ 1,290,490 $ 1,610,430 $ 1,874,190 $ 2,049,943 $ 2,188,334 $ 2,334,472

Year-over-year growth 1,594 % 1,205 % 761 % 415 % 219 % 118 % 70 % 45 %

Cost of Revenue:

Third Party and Other Cost of Revenue ⁽³⁾ $ 39,765 $ 54,803 $ 62,339 $ 86,882 $ 102,629 $ 77,032 $ 54,173 $ 63,905

Direct Cost of Revenue ⁽³⁾ – – 5,707 9,383 16,869 58,152 127,613 218,567

Total Consolidated Cost of Revenue $ 39,765 $ 54,803 $ 68,046 $ 96,265 $ 119,498 $ 135,184 $ 181,786 $ 282,472

% of Total Consolidated Revenue 13 % 14 % 16 % 20 % 21 % 24 % 32 % 44 %

Gross Profit

Third Party and Other $ 255,758 $ 337,779 $ 360,650 $ 391,628 $ 437,424 $ 425,953 $ 369,391 $ 349,222

Direct – – 1,465 4,271 2,361 7,198 17,375 6,608

Total $ 255,758 $ 337,779 $ 362,115 $ 395,899 $ 439,785 $ 433,151 $ 386,766 $ 355,830

% of Total Consolidated Revenue 87 % 86 % 84 % 80 % 79 % 76 % 68 % 56 %

Operating (Loss) Income Excl SBC, Acq-Related $ (98,284 ) $ (62,309 ) $ (1,692 ) $ 17,952 $ 67,590 $ 71,934 $ 50,488 $ 13,703

Year-over-year growth N/A (166 ) % 93. % N/A N/A N/A N/A (24 ) %

Operating Margin Excl SBC, Acq-Related (% of Total Consolidated revenue) (33.3 ) % (15.9 ) % (0.4 ) % 3.6 % 12.1 % 12.7 % 8.9 % 2.1 %

Year-over-year growth (bps) (7,611 ) 4,471 2,760 8,689 4,534 2,853 930 (150 )

Operating (Loss) Income TTM Excl SBC, Acq-Related $ (287,964 ) $ (326,848 ) $ (305,646 ) $ (144,333 ) $ 21,541 $ 155,784 $ 207,964 $ 203,715

Operating Margin TTM Excl SBC, Acq-Related (% of Total Consolidated TTM revenue) (49.0 ) % (34.7 ) % (23.7 ) % (9.0 ) % 1.1 % 7.6 % 9.5 % 8.7 %

Year-over-year growth (bps) (7,208 ) (1,333 ) 245 4,887 5,011 4,229 3,320 1,770

Operating (Loss) Income $ (117,148 ) $ (101,027 ) $ (239 ) $ (14,972 ) $ 39,639 $ 46,485 $ 25,438 $ (12,861 )

Year-over-year growth N/A (174 ) % 100 % 96. % N/A N/A N/A 14 %

Operating Margin (% of Total Consolidated revenue) (39.6 ) % (25.7 ) % (0.1 ) % (3.0 ) % 7.1 % 8.2 % 4.5 % (2.0 ) %

Year-over-year growth (bps) (8,192 ) 6,949 6,838 19,213 4,673 3,391 457 100

Operating (Loss) Income TTM $ (546,064 ) $ (610,272 ) $ (554,543 ) $ (233,386 ) $ (76,599 ) $ 70,913 $ 96,590 $ 98,701

Operating Margin TTM (% of Total Consolidated TTM revenue) (92.8 ) % (64.8 ) % (43.0 ) % (14.5 ) % (4.1 ) % 3.5 % 4.4 % 4.2 %

Year-over-year growth (bps) (11,533 ) (2,457 ) 1,427 11,983 8,875 6,824 4,740 1,870

Net (Loss) Income Attributable to Common Stockholders (146,480 ) (107,406 ) (54,229 ) (65,379 ) (11,695 ) 28,386 (2,979 ) (81,089 )

Weighted Average Basic Shares Outstanding 307,849 303,415 307,605 528,422 644,097 647,150 653,224 655,678

Weighted Average Diluted Shares Outstanding ⁽⁵⁾ 307,849 303,415 307,605 528,422 644,097 663,123 653,224 655,678

Net (Loss) Earnings per Share

Basic $ (0.48 ) $ (0.35 ) $ (0.18 ) $ (0.12 ) $ (0.02 ) $ 0.04 $ (0.00 ) $ (0.12 )

Diluted $ (0.48 ) $ (0.35 ) $ (0.18 ) $ (0.12 ) $ (0.02 ) $ 0.04 $ (0.00 ) $ (0.12 )

Supplemental Financial Information and Business Metrics⁽¹³⁾

(in thousands, except per share and headcount data and TTM

Gross Billings / Average Active Customer)

(unaudited)

Q1 2011 ⁽⁸⁾ Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012

Depreciation and Amortization

North America $ 1,273 $ 1,910 $ 2,817 $ 4,515 $ 5,004 $ 6,669 $ 8,153 $ 10,754

International 6,325 6,188 4,241 4,786 6,712 6,141 7,157 5,211

Consolidated $ 7,598 $ 8,098 $ 7,058 $ 9,301 $ 11,716 $ 12,810 $ 15,310 $ 15,965

The following is a quarterly reconciliation of Operating (Loss) Income, excluding stock-based compensation and acquisition-related expense (benefit), net, to the most comparable U.S. GAAP measure, “Operating (Loss) Income.” ⁽⁶⁾

Operating (Loss) Income, excluding stock-based compensation and acquisition-related expense $ (98,284 ) $ (62,309 ) $ (1,692 ) $ 17,952 $ 67,590 $ 71,934 $ 50,488 $ 13,703

Stock-based Compensation (18,864 ) (38,718 ) (3,340 ) (32,668 ) (28,003 ) (27,084 ) (22,619 ) (26,411 )

Acquisition-related expense (benefit), net – – 4,793 (256 ) 52 1,635 (2,431 ) (153 )

Operating (Loss) Income $ (117,148 ) $ (101,027 ) $ (239 ) $ (14,972 ) $ 39,639 $ 46,485 $ 25,438 $ (12,861 )

The following is a trailing twelve months reconciliation of Operating (Loss) Income, excluding stock-based compensation and acquisition-related expense (benefit), net, to the most comparable U.S. GAAP measure, “Operating (Loss) Income.” ⁽⁶⁾

Operating (Loss) Income, excluding stock-based compensation and acquisition-related expense TTM $ (287,964 ) $ (326,848 ) $ (305,646 ) $ (144,333 ) $ 21,541 $ 155,784 $ 207,964 $ 203,715

Stock-based Compensation (54,916 ) (89,674 ) (88,351 ) (93,590 ) (102,729 ) (91,095 ) (110,374 ) (104,117 )

Acquisition-related expense (benefit), net (203,184 ) (193,750 ) (160,546 ) 4,537 4,589 6,224 (1,000 ) (897 )

Operating (Loss) Income TTM $ (546,064 ) $ (610,272 ) $ (554,543 ) $ (233,386 ) $ (76,599 ) $ 70,913 $ 96,590 $ 98,701

The following is a quarterly reconciliation of foreign exchange rate neutral Gross Billings growth from the comprable quarterly periods of the prior year to reported Gross billings growth from the comprable quarterly periods of the prior year.⁽⁷⁾

International Gross Billings, excluding FX N/A 4,587 % 1,021 % 287 % 138 % 45 % (4 ) % 9 %

FX Effect N/A 470 % 94 % (4 ) % (11 ) % (13 ) % (8 ) % (3 ) %

International Gross Billings N/A 5,057 % 1,115 % 283 % 127 % 32 % (12 ) % 6 %

Consolidated Gross Billings, excluding FX 1,378 % 859 % 465 % 198 % 108 % 47 % 11 % 25 %

FX Effect 27 % 57 % 31 % (2 ) % (5 ) % (9 ) % (6 ) % (1 ) %

Condolidated Gross Billings 1,405 % 916 % 496 % 196 % 103 % 38 % 5 % 24 %

The following is a quarterly reconciliation of foreign exchange rate neutral Revenue growth from the comprable quarterly periods of the prior year to reported Revenue growth from the comprable quarterly periods of the prior year.⁽⁷⁾

International Revenue, excluding FX N/A 7,013 % 868 % 276 % 112 % 44 % 13 % (14 ) %

FX Effect N/A 696 % 79 % (3 ) % (10 ) % (13 ) % (10 ) % (2 ) %

International Revenue N/A 7,709 % 947 % 273 % 102 % 31 % 3 % (16 ) %

Consolidated Revenue, excluding FX 1,332 % 858 % 401 % 188 % 95 % 53 % 38 % 31 %

FX Effect 26 % 57 % 25 % (2 ) % (6 ) % (8 ) % (6 ) % (1 ) %

Consolidated Revenue 1,358 % 915 % 426 % 186 % 89 % 45 % 32 % 30 %

Cash Flow

Operating cash flow (TTM) $ 91,928 $ 128,316 $ 173,291 $ 290,447 $ 356,221 $ 392,517 $ 370,194 $ 266,834

Purchases of property, equipment and capitalized software, net (TTM) (24,780 ) (31,949 ) (38,414 ) (43,811 ) (45,932 ) (62,401 ) (69,788 ) (95,836 )

Free cash flow (TTM)⁽⁹⁾ $ 67,148 $ 96,367 $ 134,877 $ 246,636 $ 310,289 $ 330,116 $ 300,406 $ 170,998

Net cash (used in) provided by investing activities (TTM) $ (55,510 ) $ (83,226 ) $ (124,301 ) $ (147,433 ) $ (149,583 ) $ (184,552 ) $ (177,133 ) $ (194,979 )

Net cash provided by (used in) financing activities (TTM) $ 142,549 $ 125,404 $ 130,593 $ 867,205 $ 746,824 $ 771,404 $ 765,503 $ 12,095

Other Metrics:

Active Customers⁽¹⁰⁾

North America 8,213 11,039 12,823 14,084 14,876 15,121 15,983 17,215

International 7,163 11,998 16,083 19,658 21,974 22,925 23,542 23,834

Total Active Customers 15,376 23,037 28,906 33,742 36,850 38,046 39,525 41,049

TTM Gross Billings / Average Active Customer ⁽¹¹⁾ $ 169 $ 174 $ 189 $ 187 $ 179 $ 165 $ 149 $ 144

Headcount

Sales ⁽¹²⁾ 3,556 4,850 4,853 5,196 5,735 5,587 5,087 4,677

% North America 19 % 20 % 21 % 20 % 21 % 20 % 24 % 25 %

% International 81 % 80 % 79 % 80 % 79 % 80 % 76 % 75 %

Other 3,551 4,775 5,565 6,275 6,813 7,233 6,779 6,717

Total Headcount 7,107 9,625 10,418 11,471 12,548 12,820 11,866 11,394

(1) Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Includes direct billings and third party and other billings.

(2) Third party revenue is related to sales for which the company acts as a marketing agent for the merchant. This revenue is recorded on a net basis. Direct revenue is related to the sale of products for which the Company is the merchant of record. These revenues are accounted for on a gross basis, with the cost of inventory included in cost of revenue.

(3) Cost of revenue is comprised of direct and indirect costs incurred to generate revenue. Direct cost of revenue includes the purchase price of consumer products, warehousing, shipping costs and inventory markdowns. Third party cost of revenue includes estimated refunds for which the merchant’s share is not recoverable. Other costs incurred to generate revenue are allocated to cost of third party revenue, direct revenue and other revenue in proportion to relative gross billings during the period.

(4) Represents change in financial measures that would have resulted had average exchange rates in the reported period been the same as those in effect in the prior year period.

(5) The weighted-average diluted shares outstanding is calculated using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock units and restricted shares, as calculated using the treasury stock method.

(6) Operating income excluding stock-based compensation and acquisition-related activities is a non-GAAP financial measure. The Company reconciles this measure to the most comparable U.S. GAAP measure, ‘‘Operating Income,” for the periods presented.

(7) Foreign Exchange Rate neutral operating results are non-GAAP financial measures. The Company reconciles these measures to the most comparable U.S. GAAP measures, ‘‘Gross Billings” and “Revenue,” for the periods presented.

(8) Year-over-year growth is unavailable for select international growth measures as Groupon did not commence international operations until the second quarter of 2010.

(9) Free cash flow is a non-GAAP financial measure. The Company reconciles this measure to the most comparable U.S. GAAP measure, ‘‘Net cash provided by operating activities,” for the periods presented. See “Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities.”

(10) Reflects the total number of unique accounts who have purchased Groupons during the trailing twelve months.

(11) Reflects the total gross billings generated in the trailing twelve months per average active customer over that period.

(12) Includes inside and outside merchant sales representatives, as well as sales support.

(13) The definition, methodology, and appropriateness of each of our supplemental metrics is reviewed periodically. As a result, metrics are subject to removal and/or change.

February 28, 2013

Vantage Lines Up 1 Megawatt Lease in Santa Clara

The exterior of the V2 data center on the Vantage Data Centers campus in Santa Clara, Calif. (Photo: Vantage)

Vantage Data Centers has signed a new long-term customer lease for a 1 megawatt data hall on its campus in Santa Clara, California, the company said this week. The deal continues the busy pace of leasing in Santa Clara, the hub of data center activity in Silicon Valley.

Vantage said construction is already underway on the new customer installation, with opening anticipated in the second quarter. The company also said it has completed commissioning of an additional 3 megawatts of critical power at its V1 facility, bringing the total power capacity at its Santa Clara campus to 23 megawatts.

Vantage’s first building, a 6 megawatt retrofitted facility known as V3, is fully leased to four tenants, including Mozilla Corp. Vantage then leased its entire V2 data center to a single tenant in a 9-megawatt lease. Telx is the anchor tenant in V1, where Vantage is now building out the remainder of the building in phases.

“Our growth continues in Santa Clara and we’re excited to see that our custom solution model continues to be effective in a very competitive marketplace,” said Vantage CEO Jim Trout. “As we continue to build new solutions to support our leasing back-log and lease new space, we remain convinced that the industry leading customers with whom we work continue to value corporate cultural alignment, demonstrated delivery capabilities and customization to support their business objectives.”

Vantage says its 18-acre Santa Clara campus can support up to 47 megawatts of critical power demand, can can deploy up to 15 megawatts of space. That’s a point of interest in Santa Clara, the data center capital of Silicon Valley, where the supply of data center space has been closely watched.

Santa Clara Market Dynamics

Just a year ago many believed the Santa Clara market for wholesale data center space had too much supply, with DuPont Fabros, Vantage, Digital Realty and CoreSite all bringing new space online. But active leasing in the second half of the year – including two large leases by DuPont Fabros that brought its huge facility to 75 percent occupancy – has changed the market dynamics.

Digital Realty, which has the largest data center footprint in Santa Clara, estimates that there were 23 megawatts of available wholesale data center space in Silicon Valley at the end of 2012. But the company’s data shows that the Silicon Valley market absorbed 33 megawatts of space last year and 36.2 megawatts in 2011, which suggests that at current demand levels, the existing space could be filled as soon as the third quarter of 2013.

That view aligns with the assessment of DuPont Fabros. “We continue to see good demand and are optimistic about fully leasing the (SC1) property by mid-2013,” said President and CEO Hossein Fateh.

But the ready inventory and competitive nature of the Santa Clara market has meant a slightly lower return. “When we delivered the property in the fourth quarter of 2011, our goal was an 18-month lease up and achieving a 12 percent unlevered return,” said Fateh. “With the most recent leasing in the fourth quarter, we’re now targeting a 10 percent unlevered return.”

February 28, 2013
T-Mobile continued tumble in Q4, income down 25% as 515,000 contract customers left

The iPhone isn’t always the savior carriers hope it will be, but T-Mobile certainly needs something to help reverse its current course. As the carrier awaits the arrival of Apple (AAPL) devices and the imminent MetroPCS merger, customers continue to jump ship and performance it taking a serious hit as a result. T-Mobile on Thursday reported Q4 revenue that sank to $4.9 billion from $5.2 billion in the same quarter a year ago, while operating income tumbled 25% to $1 billion. 515,000 contact subscribers left T-Mobile during the holiday quarter, even worse than the 492,000 contract subs it shed in the same quarter in 2011. Parent company Deutsche Telecom said it expects the MetroPCS merger to be finalized as soon as April. T-Mobile’s full press release follows below.

Continue reading…

February 28, 2013
HP, Dell Announce New Big Data Analytics Solutions

Here’s a roundup of some of this week’s headlines from the Big Data sector:

HP leverages Hadoop for providing context to big data. HP (HPQ) announced new offerings to help organizations to gain security intelligence from large data sets to better detect and prevent threats. The security information and event management (SIEM) capabilities of HP ArcSight with the HP Autonomy IDOL content analytics engine automatically recognizes the context, concepts, sentiments and usage patterns related to how users interact with all forms of data. “Many organizations have not been able to access the critical information they need to combat potential threats,” said Art Gilliland, senior vice president and general manager, Enterprise Security Products, HP. “With the integration of cloud monitoring, content analytics and Big Data processing, HP provides clients with the context needed to effectively stop potential breaches.”

Dell advances Kitenga Analytics. Dell announced the latest release of its Kitenga Analytics solution, which allows data scientists to analyze structured, semi-structured and unstructured data stored in Hadoop. Version 2.0 of the software adds new search, indexing and sentiment analysis functionality, has additional support for Predictive Modeling Markup Language (PMML) and combines search and analytics in a single, unified environment. “Dell is committed to building a complete analytical fabric of all data sources to reduce the cost, complexity and risk that companies face as they wade through Big Data to improve decision making,” said Darin Bartik, executive director, product management, Information Management at Dell Software. ”With Kitenga Analytics and Toad Business Intelligence Suite, Dell Software is creating a world-class solution set to transform how companies search, correlate and use information to solve their business problems and achieve a bigger competitive edge.”

DataStax Enterprise 3. DataStax announced the general availability of DataStax Enterprise 3 (DSE), its Apache Cassandra-based big data platform. The new release provides the most comprehensive security feature set of any NoSQL platform, while still delivering its core benefits of scalability, easy manageability and continuous availability. DSE 3 is a complete integrated big data platform that combines a production-certified version of Cassandra with Apache Solr and Apache Hadoop to deliver continuous availability support and performance across multiple data centers. “DSE is already running mission-critical apps but one hurdle to widespread adoption remains – security,” said Billy Bosworth, CEO, DataStax. “Now with DSE 3, not only do we meet the needs of app and database teams, but also those of the chief security officer.”

ParStream and Colfax partner. Data analytics provider ParStream and Colfax International announced a partnership aimed at creating a plug-and-play solution for big data analytics. With the ParStream technology pre-loaded on a customized Colfax server, deployment will be seamless and faster, since it will virtually eliminate any additional effort on part of the customer. This joint software-hardware solution will enable customers across several industries to seamlessly gain new insights from big data in real-time. “At ParStream, we are always on the lookout to make life simpler for our customers. We found a great partner in Colfax- they understood our goal and are working with us to achieve it,” said Michael Hummel, CEO, ParStream. “The servers are pre-qualified by ParStream for compatibility and performance. This ensures that the load on the CPU is reduced, paving the way for a less stressful I/O environment. We look at it as enabling Out-of-the-box Big Data Analytics.”

February 28, 2013
Internet of things Podcast – Almond+’s nutty idea: Making sensor connectivity a snap
What do you need for the Internet of things? It’s not entirely clear yet, but what we do know is that right now there are several ways to connect devices to the home network but a consumer doesn’t really want to have to wonder how to connect a Zigbee thermostat to their home Wi-Fi network. That’s why router startup Securifi has produced the Almond+ router that aims to build a home network-capable router that will include Wi-Fi, Zigbee and Z-Wave controlled by a touch screen. The goal is to automatically connect sensors into your home network much like you can bring in a Wi-Fi capable device and have it just work when you bring it onto the network.

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Show notes:
Host: Stacey Higginbotham
- The problem of too many boxes with your connected devices
- Why you need connected lights, but not a connected fridge
- Why Nest is not the best case study for the Internet of things
- Why Z-wave is the better standard for home sensor networks today and why ZigBee gets all the love
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February 28, 2013
New study could explain why some people get zits and others don’t

The bacteria that cause acne live on everyone’s skin, yet one in five people is lucky enough to develop only an occasional pimple over a lifetime. What’s the secret?

In a boon for teenagers everywhere, a UCLA study conducted with researchers at Washington University in St. Louis and the Los Angeles Biomedical Research Institute has discovered that acne bacteria contain “bad” strains associated with pimples and “good” strains that may protect the skin.

The findings, published in the Feb. 28 edition of the Journal of Investigative Dermatology, could lead to a myriad of new therapies to prevent and treat the disfiguring skin disorder.

“We learned that not all acne bacteria trigger pimples — one strain may help keep skin healthy,” said principal investigator Huiying Li, an assistant professor of molecular and medical pharmacology at the David Geffen School of Medicine at UCLA. “We hope to apply our findings to develop new strategies that stop blemishes before they start, and enable dermatologists to customize treatment to each patient’s unique cocktail of skin bacteria.”

The scientists looked at a tiny microbe with a big name: Propionibacterium acnes, bacteria that thrive in the oily depths of our pores. When the bacteria aggravate the immune system, they cause the swollen, red bumps associated with acne.

Using over-the-counter pore-cleansing strips, LA BioMed and UCLA researchers lifted P. acnes bacteria from the noses of 49 pimply and 52 clear-skinned volunteers. After extracting the microbial DNA from the strips, Li’s laboratory tracked a genetic marker to identify the bacterial strains in each volunteer’s pores and recorded whether the person suffered from acne.

Next, Li’s lab cultured the bacteria from the strips to isolate more than 1,000 strains. Washington University scientists sequenced the genomes of 66 of the P. acnes strains, enabling UCLA co-first author Shuta Tomida to zero in on genes unique to each strain.

“We were interested to learn that the bacterial strains looked very different when taken from diseased skin, compared to healthy skin,” said co-author Dr. Noah Craft, a dermatologist and director of the Center for Immunotherapeutics Research at LA BioMed at Harbor–UCLA Medical Center. “Two unique strains of P. acnes appeared in one out of five volunteers with acne but rarely occurred in clear-skinned people.”

The biggest discovery was still to come.

“We were extremely excited to uncover a third strain of P. acnes that’s common in healthy skin yet rarely found when acne is present,” said Li, who is also a member of UCLA’s Crump Institute for Molecular Imaging. “We suspect that this strain contains a natural defense mechanism that enables it to recognize attackers and destroy them before they infect the bacterial cell.”

Offering new hope to acne sufferers, the researchers believe that increasing the body’s friendly strain of P. acnes through the use of a simple cream or lotion may help calm spotty complexions.

“This P. acnes strain may protect the skin, much like yogurt’s live bacteria help defend the gut from harmful bugs,” Li said. “Our next step will be to investigate whether a probiotic cream can block bad bacteria from invading the skin and prevent pimples before they start.”

Additional studies will focus on exploring new drugs that kill bad strains of P. acnes while preserving the good ones; the use of viruses to kill acne-related bacteria; and a simple skin test to predict whether a person will develop aggressive acne in the future.

“Our research underscores the importance of strain-level analysis of the world of human microbes to define the role of bacteria in health and disease,” said co-author George Weinstock, associate director of the Genome Institute and professor of genetics at Washington University in St. Louis. “This type of analysis has a much higher resolution than prior studies that relied on bacterial cultures or only made distinctions between bacterial species.”

Acne affects 80 percent of Americans at some point in their lives, yet scientists know little about what causes the disorder and have made limited progress in developing new strategies for treating it. Dermatologists’ arsenal of anti-acne tools — benzoyl peroxide, antibiotics and Accutane (isotretinoin) — hasn’t expanded in decades. Most severe cases of acne don’t respond to antibiotics, and Accutane can produce serious side effects.

The research was supported by a grant (UH2AR057503) from the National Institutes of Health’s Human Microbiome Project through the National Institute of Arthritis and Musculoskeletal and Skin Diseases.

Co-authors include co-first author Sorel Fitz-Gibbon, Bor-Han Chiu, Lin Nguyen, Christine Du, Dr. Minghsun Liu, David Elashoff, Dr. Jenny Kim, Anya Loncaric, Dr. Robert Modlin and Jeff F. Miller of UCLA; Erica Sodergren of Washington University; and Dr. Marie Erfe of LA BioMed.

For more news, visit the UCLA Newsroom and follow us on Twitter.

February 28, 2013
More than half of UK smartphone owners say they’ve never seen a mobile ad

As companies like Google (GOOG) and Facebook (FB) continue to eye the mobile market as they look to bolster their advertising portfolios, a new report suggests mobile might not be the golden goose some had hoped. An estimated 61% of cell phone owners in the United Kingdom use smartphones, and a whopping 53% of them say they have never seen a mobile advertisement on their handsets, according to a recent Nielsen study. Econsultancy notes that mobile advertising grew 132% in the first half last year. With more than half of smartphone users in the UK claiming to have never seen an ad, the next push in mobile advertising will likely focus on finding ways to display mobile ads more prominently.

February 27, 2013
This week’s 10 best data stories (so far)
It has been a busy week for data news already, so here are 10 of the big and/or interesting items you might have missed if you blinked:
- EMC Greenplum lays down the SQL-on-Hadoop gauntlet: The company’s new Pivotal HD Hadoop distribution fuses its analytic database technology with Hadoop to create a single data store for everything. Greenplum co-founder Scott Yara claims the data warehouse — where Greenplum got its start — is the new mainframe.
- Intel does Hadoop: Intel’s Hadoop distribution is interesting for so many reasons, but the biggest might be the sense that it’s an attempt to keep x86 relevant as ARM pushers pursue big data workloads. Among Intel’s hardware partners are Cray, SuperMicro and Cisco.
- How Friendster died and Facebook might die: Researchers studied the collapse of Friendster and decided that a dimished cost-benefit analysis and users’ average number of friends contributed to its demise. The fewer friends, the more influential one friend’s decision to quit. And people quit when services begin to suck.
- Using memristors to recreate the brain: This is a heady research project based on the theory that memristors are similar enough to synapses in the human brain that they could help create an artificial brain. Memristors are a nanotechnology that allow electrical currents to pass between circuits based on the past currents they have transmitted.
- MapR and Google in a high-performance lovefest: MapR is all about faster Hadoop, and Google is all about touting how great its Compute Engine cloud is for high-performance job. A MinuteSort benchmark test of MapR on Compute Engine bested the previous record (and crushed the previous Hadoop record for MinuteSort) — and on standard cloud servers, no less.
- LinkedIn open sources Databus: Databus is LinkedIn’s tools for updating changes in data between its various storage systems and applications at high speed. It could be pretty valuable, and I assume it’s something LinkedIn’s Bhaskar Ghosh will discuss during our guru panel at Structure: Data next month.
- Continuuity free beta now open to the public: Continuuity is the startup from former Yahoo VP Todd Papaioannou and Facebook engineer Jonathan Gray that’s building a platform as a service for developing big data applications. On Wednesday, it opened a beta version to developers who want to test the experience of building Hadoop applications on the cloud-based platform.
- Placed Analytics shows who shops in stores but buys online: This is the latest piece of research from Placed, a startup tracking mobile phone data to determine what businesses people like to visit, or at least hang out near. This report highlights which businesses are most at risk from consumers viewing products in their stores and then buying them on Amazon.
- IBM, South Korea and weather predictions:Weather forecasting has always been a good area for big data and high-performance computing, so this use case is pretty much straight data porn. From the press release: “IBM has provided KMA and NMSC with the latest IBM storage technologies capable of recording 20 gigabytes (equivalent to 400,000 web pages) of data per second … [w]ith a total storage capacity of 9.3 petabytes.”
- Virtustream using Druid for cloud analytics service: Virtustream is dead serious about staking its claim as theenterprise cloud provider, and this partnership with Metamarkets (see disclosure) is a good way to expand its reach into big data applications. Essentially, Metamarkets will provide consulting services for companies wanting to build apps atop Hadoop and Druid, the in-memory analytic database that Metamarkets created.
In addition to LinkedIn’s Ghosh, the founders of Placed, Continuuity and Metamarkets will all be on stage at Structure: Data talking about everything from building Hadoop applications, to managing massive data infrastructure to the new era of web privacy, so please come come and watch.

Disclosure: Metamarkets is a portfolio company of True Ventures, which is also an investor in GigaOM. Om Malik is also a venture partner at True.

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February 27, 2013
6 questions for DuPont’s CEO on startups, ethanol and solar (interview)
The fifth most powerful business woman in America according to Fortune, DuPont’s CEO Ellen Kullman, has spent the last few years restructuring the two century-old company around using science to help meet the needs of a world population that will balloon to 9 billion by 2050. One of those crucial needs will be access to energy, and in particular energy that doesn’t contribute to changing the world’s climate, which is why Kullman found herself on Tuesday giving a speech before thousands of energy geeks at the Department of Energy’s ARPA-E Summit.

DuPont, which has a market cap of $44 billion, “is not an energy company, it’s a science company,” Kullman reminded the audience. But with its industrial material products, high-yield agriculture strains, and bio-based chemicals, DuPont is a major supplier of materials for solar manufacturers, and is building a ground-breaking cellulosic ethanol plant in Iowa. “No industry needs innovation more than energy,” said Kullman.

Following Kullman’s remarks, we sat down with the 57-year-old, who is DuPont’s first female CEO, to ask her about working with startups, how they’ll overcome the hurdles of biofuels, and just how bullish she is on solar. The following is an edited interview:

How can startups work with DuPont? What are you guys looking for?

It depends on the area. We work with a lot of startups and small companies and we do a lot of collaboration. We’ve long transitioned to a belief that our ideas aren’t the only great ones out there and we are openly looking to collaborate — we call it inclusive innovation. Some of the problem’s we’re facing are so complex that you can get there faster and smarter if you do it with others that have skill sets that align with where we’re going or with what we need.

We’ve been working with Genencor, a Palo Alto startup, since the 90’s and the idea was to use agriculture to create industrial materials and fibers. We had certain parts of it and they had other parts of it.

There can be great synergy, but you have to get really specific. We tried before to paint the world with a large partnership with a university or a company without that definition and it doesn’t really go anywhere. A lot of times we think we know what we want, and when we engage we find out that there’s a whole other side of this that they [the startup] can bring that we hadn’t really comprehended before.

We bought Innovalight, which is helping us from the standpoint of silicon inks for solar photovoltaics. We don’t buy them all, right? The relationship is really dependent on the needs of each company and can span a contract to a JV to a purchase or a minority equity investment. The more inflexible we are the less successful we’re going to be.

Is there a strategy for acquiring startups? The reason I ask is because it seems like a lot of the IT and web ecosystem has been built around companies like Cisco or Google aggressively acquiring startups, but the science sectors don’t seem to have this kind of acquisition ecosystem.

It has to be, to what end. You want to put out real money and the question is how will it create value for our shareholders? So it tends to be very specific to an area. Like the solar area we might be looking broadly at novel materials, or novel processes, that we can bring in that can enhance our position. So it’s not a strategy to acquire, but an open strategy to create the strongest future whether its acquisition or JV or licensing. It’s about creating shareholder value. Areas that we’re very active in is agriculture, nutrition, and industrial biosciences and advanced materials.

A lot of people, including myself, are watching the ground-breaking of the cellulosic ethanol plant in Iowa with great interest. But many companies have tried to do this and have struggled. Why will DuPont succeed in this area when others have not?

We’ve been working at this for awhile — a decade. We had very specific milestones we had to meet from a tech standpoint and a scale up standpoint. We had a 150,000 gallon plant that had to meet certain criteria before we would go to the next step. This was the second major project we did from that standpoint. The first was the Bio-PDO that goes into fibers and carpets. We had an understanding and a lot of experience that told us we could get this done. But we don’t start putting a shovel in the ground until the milestones are met.

We already have the relationships with the farmers in the communities that will provide the raw materials for the plant. And we understand how much it’s going to cost to collect and store, and that’s all part of the economics. I was really impressed with the work that the team did in laying that all out five years ago. I think we have a much better shot at being successful because we have all of these areas moving at the same time. We keep building on our learnings from previous projects and it’s helping us do it faster and understand what we need from others and I think it’s going to create a huge potential for success.

Has the process of moving the cellulosic ethanol plant along taken longer than expected?

It’s never short enough for me. They [her executive team] would probably tell you that it exceeded their expectations. It’s this tug of war.

DuPont is a major supplier for materials and that makes it susceptible to the vulnerabilities of the solar cell and panel market right now. Are you still as bullish on the solar materials sector as the $2 billion DuPont was planning on selling for 2014?

I think we’re bullish on solar PV. We believe that the progress that has been made around efficiency has been tremendous in the last few years. I remember thinking when crystalline silicon got to 12 percent efficiency that it was impressive and now they’re pushing 20 [percent].

I think that materials matter. It’s not only the efficiency of the cell when it starts, it’s the efficiency 25 years later. So weatherization, things like that, become very important and materials matter in that.

I think we’ll get there. I think we’ll get to parity on average in 2015. If you look at what China’s announced for their 5 year plan to install 21 GW is helping right.

But I think it’s going to be bumpy. Any new technology transition is bumpy. And you’ve just got to be able to put it in perspective for those bumps. How much we sell in 2014, or 2015, will depend on how many modules are built, right? But I think the science is there and we just have to continue to make the progress.

What would you want to see from the government in the energy and clean power sectors?

Stable government policy. I think stability around that is very important. Consistent government policy is a really important part of a secure and a more diverse energy future.

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February 27, 2013
Right or wrong, Yahoo is the talk of the town
Marissa Mayer is not shy about making changes to make sure Yahoo gets its groove back. I am in the “not buying it” camp because I don’t think it is easy for tech companies, especially ones like Yahoo that have been eaten from inside by a systematic rot. Still, she like the Greek god Sisyphus, she is trying to push the rock up the hill.

Her moves, including buying new talent, are one way to graft new cells into the old cancerous host. And recently she put a kibosh on the company’s work-from-home policies and expects people to come to office nearest to them. The move has come under a lot of criticism. Many who have never managed folks who work remotely have been quick to criticize Mayer’s decision. Our own Mathew Ingram too isn’t a fan of her decisions.

Now, I am a big, big fan of remote work. Remember, it has been something I have been talking about since 2004 and even started a blog dedicated to this cultural shift. GigaOM itself was a remote worker powered startup. So I totally understand the benefits and shortcomings of remote work.

Still, I can understand why she is making such a move. She is trying to revitalize the company culture and it means bringing back the folks into the Yahoo offices. I don’t know if that will be enough to save the company from its actual fate, but in her attempts for cultural overhaul, it is a gamble worth taking.

Also there is an upside of all this hand wringing — people are talking about Yahoo. When was the last time did you have people even talking about Yahoo other than the constant changes in the executive suite?

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February 27, 2013
Panel: What works to change health habits

February 27, 2013
Noted BlackBerry bull changes tune

After insisting that BlackBerry (BBRY) shares would rebound throughout 2011 and 2012 as the stock plummeted, Macquarie Capital Markets cut its price target earlier this month to $11 with a Neutral rating. This marked the first time the firm has advised investors that BlackBerry shares will likely continue to fall; Macquarie remained optimistic the whole way down over the past two years, as illustrated in the chart below. While the firm does see some positive notes for BlackBerry in the coming months, it said in a recent research note that BlackBerry shares will be trading on sentiment rather than long-term fundamentals following next month’s launches, after which the stock will likely continue to slide.

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February 27, 2013
How to stop adding to the hype and make the internet of things a reality
The internet of things is an amorphous concept, much like the internet itself: People assume it’s a network of connected devices that will somehow let them do something or monitor something over the internet. But the folks trying to build the internet of things can’t be content with a mere concept; they need to refine it, so they can actually deliver on the awesome promise that the combination of connected devices, cloud computing and faster data analytics can offer.

Last night in San Francisco, five speakers at the GigaOM internet of things meetup hashed out a definition for the concept, called for better design associated with internet of things-based services and begged people to share their data. As for that definition, it wasn’t exactly definite; but all of the participants agreed that the connected device wasn’t the product, the service was.

Ideally, the internet of things should fade into the background; what matters is what it allows people to do.

How to design and develop for the IoT

Dave Merrill of Sifteo and Alsop Louie Partners at the meetup.

But fading into the background requires design decisions that are very different than app or web design as well as new theories of programming. This will result in a new class of physical devices that augment our smartphones — or what David Merril, the CEO of Sifteo (see disclosure), calls “the glass slab.”

“Our current programming tools are rigid and deterministic,” said Mike Kuniavsky, a principal in the Innovation Services Group at PARC. He argued that developers are not prepared to program for a world where hundreds of connected devices will work in concert to deliver services. The industry can’t afford to fall back on the current pattern of binary decision making and still deliver a real-time experience, which means that programmers will start having to think about how to connect these tools using probabilistic logic: in which the computer, not a human, chooses the most likely outcome.

“We can’t afford command and control, and it fails when you move to hundreds or thousands of devices,” Kuniavsky said. “We need new tools that will help us shape the behavior of many devices asking for information simultaneously, working probabilistically rather than through increasing hardware.”

Roberto Tagliabue of Jawbone

The other design elements that people must take into consideration are that these are not devices made for the screen, but devices that need to be integrated into everyday life, according to Roberto Tagliabue, executive director and software designer at Jawbone. It’s also important to think about the difference between a service and an app that might hope to have the user’s full attention.

“Ask when and how we can be relevant to the user,” Tagliabue said. “It’s not about their full attention, but now, how we can improve their life.”

The future of physical objects

Design and programming considerations aside, the talk at the meetup later shifted to what happens as the smartphone replaces a variety of physical objects. Merrill didn’t think the “big glass slab” replaces physical devices, but instead that our devices will get more tactile and design connectivity in for specific uses.

“Making the tool fit us and making it fit the task is super important,” he said. “Our hands have a lot of different things we can do and most are different from touching a screen.”

Several people in attendance wondered about the direction for the current internet of things. Usman Haque of Cosm outlined the ways that big companies like Philips, IBM and Samsung are talking about the internet of things as a way to boost convenience, but also as a way for people to abdicate their thought process to the dictates of connected devices. He also found efforts to consider security and privacy in our coming connected world as a threat to innovation, noting if the founders of the internet started their tinkering with worries about securing the network, it would never have evolved the way it did.

He ended with a call to action for the people in the room, asking them to have fun and to build devices that were open, sharing the data they collected with an eye toward actually connecting things and giving others the opportunity to build on top of their original designs. In that way, the business model for the internet of things will mirror that of an app store, where the hardware platform provider and the developers share in the wealth.

The visions and advice shared last night paint a utopian vision for our connected future, one that I hope comes to pass. But first, let’s get the definition of the internet of things spread far and wide. It’s about the services, not about devices.

Disclosure: Sifteo is backed by True Ventures. True Ventures is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

This story was corrected to reflect Mike Kuniavsky’s title at PARC. He is a principal not the head of Innovation Services Group at PARC.

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February 27, 2013
Crytek CEO: PlayStation 4, next-gen Xbox can’t compete with PCs

There may come a day when diehard video game fans ditch their consoles completely in favor of PC gaming. Following the unveiling of Sony’s (SNE) PlayStation 4 console, and just ahead of Microsoft’s (MSFT) next Xbox’s debut, the CEO of leading game lab Crytek offered Eurogamer a grim dose of reality: neither of these next-generation consoles can compete with PCs in terms of the technology that powers them.

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February 27, 2013
Intel Enters the Hadoop Software Market
Supermicro has introduced its 4U FatTwin SuperServer system, which supports four nodes with twelve 3.5-inch hard drives plus two 2.5-inch drives each. The system supports Intel’s Hadoop distribution, which was announced yesterday, (Photo: Supermicro)

The market for Hadoop software continues to attract new players. Intel (INTC) announced the availability of its Distribution for Apache Hadoop, including new management tools. More than 20 partners announced support for Intel’s Hadoop offering, including Cisco, Red Hat, Cray and Supermicro.

Intel’s move comes a day after EMC rolled out its own Pivotal HD Hadoop distribution integrating Greenplum’s massively parallel processing (MPP) database. Intel and EMC will compete with newer players including Map R, Hortonworks and Cloudera in the growing market for Hadoop solutions.

Apache Hadoop is a software framework that supports data-intensive distributed applications. It has become one of the most important technologies for managing large volumes of data, and has given rise to a growing ecosystem of tools and applications that can store and analyze large datasets on commodity hardware.

“Transformational Opportunity” of Big Data

“People and machines are producing valuable information that could enrich our lives in so many ways, from pinpoint accuracy in predicting severe weather to developing customized treatments for terminal diseases,” said Boyd Davis, vice president and general manager of Intel’s Datacenter Software Division. “Intel is committed to contributing its enhancements made to use all of the computing horsepower available to the open source community to provide the industry with a better foundation from which it can push the limits of innovation and realize the transformational opportunity of big data.”

The Intel open platform was built from the ground up, on Apache Hadoop, and will keep pace with the rapid evolution of big data analytics. Intel says its distribution is the first to provide complete encryption with support of Intel AES New Instructions (Intel AES-NI) in the Intel Xeon processor. Silicon-based encryption allows organizations to more securely analyze their data sets without compromising performance.

Intel Manager for Apache Hadoop simplifies the deployment, configuration and monitoring of the cluster for system administrators as they look to deploy new applications. The new Intel Active Tuner automatically configures and optimizes performance for Hadoop.

Intel has worked with strategic partners to integrate this software into a number of next-generation platforms and solutions, including:
- Red Hat plans to build solutions using Intel Distribution integrated with Red Hat solutions, such as Red Hat Storage Server 2.0 and Red Hat Enterprise Linux. Big data solutions resulting from the expanded Red Hat and Intel alliance will be designed to meet enterprise expectations for availability, performance, and compatibility. This builds upon Red Hat’s plans announced last week surrounding big data strategy.
- Cray announced that it will introduce a new solution combining the Intel Distribution for Apache Hadoop software with the Cray Xtreme line of supercomputers. The new offering will add to Cray’s portfolio of ”Big Data” solutions and give customers the ability to leverage the fusion of supercomputing and Big Data. “Cray has enabled customers to achieve modeling and simulation at the highest scale possible, and we are excited to work with Intel to provide dramatic new levels of data assimilation combined with modeling and simulation – driving the analytics needed for knowledge discovery and optimal decision making,” said Bill Blake, senior vice president and CTO of Cray. “The new features added to the Intel Distribution, such as greater security, improved real-time handling of sensor data, and improved performance throughout the storage hierarchy will benefit Cray’s traditional customers in big science and supercomputing, in addition to new commercial customers who need the combination of supercomputing capabilities and an enterprise-strength approach to Big Data.”
- Supermicro announced it is expanding its Hadoop Big Data initiatives with support for the new Intel Distribution for Apache Hadoop. Supermicro’s Hadoop-optimized server and storage systems have undergone rigorous testing and validation.
- RainStor announced that its Big Data Analytics on Hadoop product has been validated with the Intel Distribution for Apache Hadoop software. The solution provides faster, more flexible analytics using Standard SQL, BI Tools and MapReduce without the need to move data out of the Hadoop environment.
- Zettaset announced that it supports the launch of the Intel Distribution for Apache Hadoop. Joint customers of Zettaset and Intel can now benefit from the ease of use of a Hadoop installation and management solution that works with the only distribution of Apache Hadoop built from the silicon up.“Intel has worked diligently with their partners to ensure compatibility and deliver a robust, high performance Big Data solution for the enterprise,” said Zettaset President and CEO Jim Vogt. “We are excited to be included in Intel’s growing Big Data ecosystem and look forward to helping our joint customers to easily install, manage and secure their Intel-powered Hadoop deployments.”
In this video, Davis and Paul Perez, Cisco Vice President and CTO, Data Center Group discuss the extended relationship between the companies into big data.
February 27, 2013
The CAT B15 Android Smartphone Has A Weird Name But The Brawn To Back It Up

Just as some people are put on this earth to create things, others are prone to destroy everything they touch. Those people should probably spend some time with the Caterpillar-branded CAT B15, an aluminum-and-rubber-clad Android smartphone that (inadvertently) encouraged people to work on their stress issues here at MWC.

Naturally, Caterpillar isn’t actually making the phones — it’s a very far cry from the engines and bulldozers that the company is better known for. The device itself is made by a licensee called Bullitt Mobile, a U.K.-based company whose sole reason for existing seems to be churning out these sorts of rugged handsets.

In fact, It’s actually rather hard to get a firm idea of how tough this thing actually is. Sure, it’s completely dust-proof (assuming all the ports are properly closed) and the 4-inch display is swathed in second generation Gorilla Glass, but it’s all sort of abstract until you hold the thing in your hand the feel the urge to heave it somewhere. In spite of its considerable chubbiness, the B15 is actually lighter than you’d expect, though it’s still going to elicit some stares should you shove the thing into your pocket.

In a classic case of brawn vs. brains, the B15 isn’t the snappiest thing you’ll ever see with its dual-core 1GHz Qualcomm processor and but it’s still got enough horsepower to handle most daily tasks. If anything, performance is aided by the fact that the particular build of Android loaded up on the B15 is totally stock — no garish, cumbersome UI to be found here.

And perhaps best of all, the 4-inch display recognizes touch input even when it’s wet — mostly. After a booth representative shot down my attempt to hurl the thing like baseball (not a huge loss, my fastball is pretty lousy), I settled for dunking the B15 in some water a few times. For the first few instances, things worked fine, but at some point you’ll eventually have to wipe the thing down for it to start behaving properly again. Hardly a big deal, but those of you looking for an Android-powered diving buddy will have to look elsewhere (especially because it’s only waterproof until you go deeper than 1 meter).

In the event that your current smartphone is just too puny to keep up with your lifestyle, the CAT B15 will be available in March for €395 — try not to hurt yourself until then.

Click to view slideshow.

February 27, 2013
Video look: E-ink Android phone that runs for weeks on a charge
A number of high-performing, cutting edge smartphones were introduced both at last month’s Consumer Electronics Show and this week’s Mobile World Congress. With super high-resolution screens and fast processors, however, most of these handsets run out of juice by day’s end, if not before. Would you give up some speed, features and functions for a Android phone that lasts for a few weeks on a charge? If so, this e-ink Android prototype might be right up your alley.

The folks at MobileGeeks took the prototype for a spin at MWC and you’ll immediately notice that the device is not quite ready for the market. Meaning: the touchscreen isn’t calibrated properly and the display refresh rate isn’t as fast as it needs to be. Still, there’s potential here if the technology improves.

Ideally, these lower-powered e-ink displays would offer fast frame rates and even color; some companies have attempted this in the past — namely Qualcomm and Pixel Qi — but actual products have been lackluster at best. In fact, Qualcomm ceased making screens with its Mirasol display technology and instead began licensing the tech last year.

Are we really close to smartphones that use e-ink touchscreens and last for weeks on a single charge? Not likely. But I could easily envision voice capability in a connected e-ink reader device.

We’re long past the point where voice is an activity limited solely to a “phone.” Communication is evolving to where we want to be in contact with others through a connected device no matter what that device is: A computer, a tablet, a game console, a television or even an e-ink reader. Well, as long we can turn the ringer off when we’re reading!

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February 27, 2013
Californication Fans Can Hang Out With Cast Members On Google+

Fans of Showtime’s Californication are in for some fun this evening, as cast members Pamela Adlon and Evan Handler (who Louie/Lucky Louie and Sex And The City Fans are also acquainted with) will be participating in a Google+ Hangout.

Fans are encouraged to ask them “anything about this season’s scandalous moments”.

The hangout takes place at 7PM Eastern at Google.com/+Showtime.

February 27, 2013
NASA Visualizes Global Sea Surface Salinity

NASA just released this new video looking at sea surface salinity around the globe. The visualization comes from NASA’s Aquarius instrument aboard the Aquarius/SAC-D spacecraft, from December 2011 through December 2012.

NASA says Aquarius will provide the global view of salinity variability needed for climate studies.

February 27, 2013
Professional Data Obfuscation Tool

Hiding data in plain sight is not a difficult task these days, especially if you are familiar with digital steganography and the programs capable to mask information into a regular file.

This sort of applications allows you to insert a file of any kind into an image or audio item. The structure of the original file is not affected in any way, so i… (read more)

February 27, 2013


Groupon, Inc.
Summary Consolidated and Segment Results
(dollars in thousands, except share and per share data)
(unaudited)

	Three Months Ended												Y/Y %			Year Ended											Y/Y %
	December 31,												Growth			December 31,											Growth
	2012			2011			Y/Y % Growth			FX Effect ⁽²⁾			excluding FX⁽²⁾			2012			2011			Y/Y % Growth		FX Effect ⁽²⁾			excluding FX⁽²⁾
Gross Billings ⁽¹⁾
North America	$	718,952		$	475,807		51.1		%	$	(2,569	)	51.6		%	$	2,373,153		$	1,561,927		51.9	%	$	(2,780	)	52.1	%
International		801,500			755,061		6.2		%		(18,451	)	8.6		%		3,007,031			2,423,574		24.1	%		(180,739	)	31.5	%
Consolidated Billings	$	1,520,452		$	1,230,868		23.5		%	$	(21,020	)	25.2		%	$	5,380,184		$	3,985,501		35.0	%	$	(183,519	)	39.6	%

Revenue
North America	$	375,351		$	179,638		108.9		%	$	(1,082	)	109.6		%	$	1,165,700		$	634,980		83.6	%	$	(1,156	)	83.8	%
International		262,951			312,526		(15.9	)	%		(6,629	)	(13.7	)	%		1,168,772			975,450		19.8	%		(72,960	)	27.3	%
Consolidated revenue	$	638,302		$	492,164		29.7		%	$	(7,711	)	31.3		%	$	2,334,472		$	1,610,430		45.0	%	$	(74,116	)	49.6	%

Operating (loss) income	$	(12,861	)	$	(14,972	)	14.1		%	$	135		13.2		%	$	98,701		$	(233,386	)	N/A		$	(7,401	)	N/A

Net loss attributable to common stockholders	$	(81,089	)	$	(65,379	)	(24.0	)	%	$	1,102		(25.7	)	%	$	(67,377	)	$	(373,494	)	82.0	%	$	(9,283	)	84.4	%

Net loss per share
Basic	$	(0.12	)	$	(0.12	)										$	(0.10	)	$	(1.03	)
Diluted	$	(0.12	)	$	(0.12	)										$	(0.10	)	$	(1.03	)

Weighted average basic shares outstanding		655,678,123			528,421,712												650,214,119			362,261,324
Weighted average diluted shares outstanding		655,678,123			528,421,712												650,214,119			362,261,324

(1)		Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Includes direct billings and third party and other billings.
(2)		Represents change in financial measures that would have resulted had average exchange rates in the reporting period been the same as those in effect in the three months and year ended December 31, 2011.




Groupon, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	Three Months Ended December 31,						Year Ended December 31,
	2012			2011			2012			2011
Operating activities
Net loss	$	(80,047	)	$	(59,679	)	$	(51,031	)	$	(297,762	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		15,965			9,301			55,801			32,055
Stock-based compensation		26,411			32,668			104,117			93,590
Deferred income taxes		(17,259	)		31,601			(7,651	)		32,203
Excess tax benefits on stock-based compensation		(2,403	)		1,145			(27,023	)		(10,178	)
Loss on equity method investees		1,231			6,678			9,925			26,652
Acquisition-related expense (benefit), net		153			256			897			(4,537	)
Gain on return of common stock		–			–			–			(4,916	)
Gain on E-Commerce transaction		–			–			(56,032	)		–
Impairment of cost method investment		50,553			–			50,553			–
Change in assets and liabilities, net of acquisitions:
Restricted cash		(2,517	)		(4,378	)		(4,372	)		(12,519	)
Accounts receivable		12,723			(686	)		10,534			(70,376	)
Prepaid expenses and other current assets		(45,922	)		4,731			(70,859	)		(36,292	)
Accounts payable		5,537			927			18,711			(20,997	)
Accrued merchant and supplier payables		96,029			65,236			149,918			380,108
Accrued expenses and other current liabilities		(20,268	)		80,164			47,742			189,127
Other, net		25,531			1,113			35,604			(5,711	)
Net cash provided by operating activities		65,717			169,077			266,834			290,447

Net cash used in investing activities		(52,753	)		(34,907	)		(194,979	)		(147,433	)

Net cash (used in) provided by financing activities		(6,495	)		746,913			12,095			867,205

Effect of exchange rate changes on cash and cash equivalents		1,809			(2,083	)		2,404			(6,117	)
Net increase in cash and cash equivalents		8,278			879,000			86,354			1,004,102
Cash and cash equivalents, beginning of period		1,201,011			243,935			1,122,935			118,833
Cash and cash equivalents, end of the period	$	1,209,289		$	1,122,935		$	1,209,289		$	1,122,935

Groupon, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)

	Three Months Ended December 31,						Year Ended December 31,
	2012			2011			2012			2011
Revenue:
Third party and other revenue	$	413,127		$	478,510		$	1,879,729		$	1,589,604
Direct revenue		225,175			13,654			454,743			20,826
Total revenue		638,302			492,164			2,334,472			1,610,430
Cost of revenue:
Third party and other revenue		63,905			86,882			297,739			243,789
Direct revenue		218,567			9,383			421,201			15,090
Total cost of revenue		282,472			96,265			718,940			258,879
Gross Profit		355,830			395,899			1,615,532			1,351,551
Operating expenses:
Marketing		60,913			155,299			336,854			768,472
Selling, general and administrative		307,625			255,316			1,179,080			821,002
Acquisition-related expense (benefit), net		153			256			897			(4,537	)
Total operating expenses		368,691			410,871			1,516,831			1,584,937
(Loss) income from operations		(12,861	)		(14,972	)		98,701			(233,386	)
Interest and other (expense) income, net		(48,279	)		(3,835	)		6,166			5,973
Loss on equity method investees		(1,231	)		(6,678	)		(9,925	)		(26,652	)
(Loss) income before provision for income taxes		(62,371	)		(25,485	)		94,942			(254,065	)
Provision for income taxes		17,676			34,194			145,973			43,697
Net loss		(80,047	)		(59,679	)		(51,031	)		(297,762	)
Less: Net (income) loss attributable to noncontrolling interests		(936	)		(5,267	)		(3,742	)		18,335
Net loss attributable to Groupon, Inc.		(80,983	)		(64,946	)		(54,773	)		(279,427	)
Redemption of preferred stock in excess of carrying value		–			–			–			(34,327	)
Adjustment of redeemable noncontrolling interests to redemption value		(106	)		(433	)		(12,604	)		(59,740	)
Net loss attributable to common stockholders	$	(81,089	)	$	(65,379	)	$	(67,377	)	$	(373,494	)

Net loss per share
Basic	$	(0.12	)	$	(0.12	)	$	(0.10	)	$	(1.03	)
Diluted	$	(0.12	)	$	(0.12	)	$	(0.10	)	$	(1.03	)

Weighted average number of shares outstanding
Basic		655,678,123			528,421,712			650,214,119			362,261,324
Diluted		655,678,123			528,421,712			650,214,119			362,261,324

Groupon, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)

	December 31,
	2012			2011
Assets
Current assets:
Cash and cash equivalents	$	1,209,289		$	1,122,935
Accounts receivable, net		96,713			108,747
Deferred income taxes		31,211			19,243
Prepaid expenses and other current assets		150,573			72,402
Total current assets		1,487,786			1,323,327
Property, equipment and software, net		121,072			51,800
Goodwill		206,684			166,903
Intangible assets, net		42,597			45,667
Investments		84,209			50,604
Deferred income taxes, non-current		29,916			46,104
Other non-current assets		59,210			90,071
Total Assets	$	2,031,474		$	1,774,476
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	59,865		$	40,918
Accrued merchant and supplier payables		671,305			520,723
Accrued expenses		246,924			212,007
Deferred income taxes		53,700			76,841
Other current liabilities		136,647			144,673
Total current liabilities		1,168,441			995,162
Deferred income taxes, non-current		20,860			7,428
Other non-current liabilities		100,072			70,766
Total Liabilities		1,289,373			1,073,356
Commitments and contingencies
Redeemable noncontrolling interests		–			1,653
Stockholders’ Equity
Class A common stock, par value $0.0001 per share, 2,000,000,000 shares authorized, 654,523,706 and 641,745,225 shares issued and outstanding at December 31, 2012 and 2011, respectively		65			64
Class B common stock, par value $0.0001 per share, 10,000,000 shares authorized, 2,399,976 shares issued and outstanding at December 31, 2012 and 2011		–			–
Common stock, par value $0.0001 per share, 2,010,000,000 shares authorized, no shares issued and outstanding at December 31, 2012 and 2011		–			–
Additional paid-in capital		1,485,006			1,388,253
Accumulated deficit		(753,477	)		(698,704	)
Accumulated other comprehensive income		12,446			12,928
Total Groupon, Inc. Stockholders’ Equity		744,040			702,541
Noncontrolling interests		(1,939	)		(3,074	)
Total Equity		742,101			699,467
Total Liabilities and Equity	$	2,031,474		$	1,774,476

Groupon, Inc.
Segment Information
(in thousands)
(unaudited)

	Three Months Ended December 31,								Year Ended December 31,
	2012				2011				2012				2011
North America
Gross Billings⁽¹⁾	$	718,952			$	475,807			$	2,373,153			$	1,561,927
Revenue	$	375,351			$	179,638			$	1,165,700			$	634,980
Segment cost of revenue and operating expenses⁽²⁾⁽³⁾		358,319				161,399				1,025,974				630,184
Segment operating income⁽³⁾	$	17,032			$	18,239			$	139,726			$	4,796
Segment income as a percent of segment revenue		4.5		%		10.2		%		12.0		%		0.8		%

International
Gross Billings ⁽¹⁾	$	801,500			$	755,061			$	3,007,031			$	2,423,574
Revenue	$	262,951			$	312,526			$	1,168,772			$	975,450
Segment cost of revenue and operating expenses⁽²⁾⁽³⁾		266,280				312,813				1,104,783				1,124,579
Segment operating (loss) income⁽³⁾	$	(3,329	)		$	(287	)		$	63,989			$	(149,129	)
Segment (loss) income as a percent of segment revenue		(1.3	)	%		(0.1	)	%		5.5		%		(15.3	)	%

Consolidated
Gross Billings ⁽¹⁾	$	1,520,452			$	1,230,868			$	5,380,184			$	3,985,501
Revenue	$	638,302			$	492,164			$	2,334,472			$	1,610,430
Segment cost of revenue and operating expenses⁽²⁾		624,599				474,212				2,130,757				1,754,763
Segment operating income (loss)	$	13,703			$	17,952			$	203,715			$	(144,333	)
Segment income (loss) as a percent of segment revenue		2.1		%		3.6		%		8.7		%		(9.0	)	%

Stock-based compensation		26,411				32,668				104,117				93,590
Acquisition-related expense (benefit), net		153				256				897				(4,537	)
Operating (loss) income		(12,861	)			(14,972	)			98,701				(233,386	)

Interest and other expense (income), net		48,279				3,835				(6,166	)			(5,973	)
Loss on equity method investees		1,231				6,678				9,925				26,652
(Loss) income before provision for income taxes		(62,371	)			(25,485	)			94,942				(254,065	)
Provision for income taxes		17,676				34,194				145,973				43,697
Net loss	$	(80,047	)		$	(59,679	)		$	(51,031	)		$	(297,762	)

(1)		Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Includes direct billings and third party and other billings.
(2)		Represents cost of revenue and operating expenses, excluding stock-based compensation and acquisition-related expense (benefit), net.
(3)		We record intercompany cross-charges every period for services provided by the United States to our international subsidiaries. We updated our intercompany allocations for those charges during the fourth quarter of 2012, which resulted in a one-time $8.5 million decrease to International Segment operating expenses (reduction to International Segment operating loss) and a corresponding increase to North America Segment operating expenses (reduction to North America Segment operating income).

Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities
(in thousands)
(unaudited)

The following is a reconciliation of free cash flow to the most comparable U.S. GAAP measure, “Net cash provided by operating activities,” for the three months and years ended December 31, 2012 and 2011, respectively:

	Three Months Ended December 31,						Year Ended December 31,
	2012			2011			2012			2011
Net cash provided by operating activities	$	65,717		$	169,077		$	266,834		$	290,447
Purchases of property and equipment and capitalized software		(40,034	)		(13,986	)		(95,836	)		(43,811	)
Free cash flow	$	25,683		$	155,091		$	170,998		$	246,636

Net cash used in investing activities	$	(52,753	)	$	(34,907	)	$	(194,979	)	$	(147,433	)
Net cash (used in) provided by financing activities	$	(6,495	)	$	746,913		$	12,095		$	867,205

Reconciliation of Foreign Exchange Rate Neutral Operating Results to Revenue and (Loss) Income from Operations
(in thousands)
(unaudited)

The following is a reconciliation of foreign exchange rate neutral operating results to the most comparable U.S. GAAP measures, “Revenue” and “(Loss) Income from operations,” for the three months and year ended December 31, 2012:

The effect on the Company’s consolidated statements of operations from changes in exchange rates versus the U.S. Dollar for the three months ended December 31, 2012 are as follows:

	Three Months Ended December 31, 2012									Three Months Ended December 31, 2012
	At Avg.			Exchange						At Avg.			Exchange
	Q4 2011 Rates ⁽¹⁾			Rate Effect ⁽²⁾			As Reported			Q3 2012 Rates ⁽³⁾			Rate Effect ⁽²⁾			As Reported
Revenue	$	646,013		$	(7,711	)	$	638,302		$	634,734		$	3,568		$	638,302
Loss from operations	$	(12,996	)	$	135		$	(12,861	)	$	(12,075	)	$	(786	)	$	(12,861	)

The effect on the Company’s consolidated statements of operations from changes in exchange rates versus the U.S. Dollar for the year ended December 31, 2012 are as follows:

	Year Ended December 31, 2012									Year Ended December 31, 2012
	At Avg.			Exchange						At Avg.			Exchange
	2011 Rates ⁽¹⁾			Rate Effect ⁽²⁾			As Reported			Q4’11 – Q3’12 Rates ⁽³⁾			Rate Effect ⁽²⁾			As Reported
Revenue	$	2,408,588		$	(74,116	)	$	2,334,472		$	2,344,952		$	(10,480	)	$	2,334,472
Income from operations	$	106,102		$	(7,401	)	$	98,701		$	105,467		$	(6,766	)	$	98,701

(1)		Represents the outcome that would have resulted had average exchange rates in the reported period been the same as those in effect during the three months and year ended December 31, 2011.
(2)		Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable period.
(3)		Represents the outcome that would have resulted had average exchange rates in the reported period been the same as those in effect during the three and twelve months ended September 30, 2012.

Supplemental Financial Information and Business Metrics⁽¹³⁾
(in thousands, except per share and headcount data and TTM
Gross Billings / Average Active Customer)
(unaudited)

	Q1 2011 ⁽⁸⁾				Q2 2011				Q3 2011				Q4 2011				Q1 2012				Q2 2012			Q3 2012				Q4 2012

Segments
North America Segment:
Gross Billings ⁽¹⁾	$	315,152			$	369,990			$	400,978			$	475,807			$	553,557			$	548,275		$	552,369			$	718,952
Year-over-year growth		610		%		359		%		204		%		118		%		76		%		48	%		38		%		51		%
% of Consolidated Gross Billings		47		%		40		%		35		%		39		%		41		%		43	%		45		%		47		%
Gross Billings ⁽¹⁾ Trailing Twelve Months (TTM)	$	745,772			$	1,035,183			$	1,304,128			$	1,561,927			$	1,800,332			$	1,978,617		$	2,130,008			$	2,373,153

Revenue:
Third Party and Other Revenue⁽²⁾	$	136,612			$	157,205			$	161,525			$	179,638			$	230,984			$	207,119		$	158,545			$	165,776
Direct Revenue⁽²⁾		–				–				–				–				7,581				53,062			133,058				209,575
Total Revenue	$	136,612			$	157,205			$	161,525			$	179,638			$	238,565			$	260,181		$	291,603			$	375,351
Year-over-year growth		574		%		341		%		188		%		103		%		75		%		66	%		81		%		109		%
% of Consolidated Revenue		46		%		40		%		38		%		36		%		43		%		46	%		51		%		59		%
Revenue TTM	$	316,752			$	438,305			$	543,705			$	634,980			$	736,933			$	839,909		$	969,987			$	1,165,700

Cost of Revenue:
Third Party and Other Cost of Revenue ⁽³⁾	$	25,050			$	32,169			$	31,316			$	51,419			$	62,580			$	40,155		$	15,475			$	27,002
Direct Cost of Revenue⁽³⁾		–				–				–				–				6,671				46,159			115,560				196,789
Total Cost of Revenue	$	25,050			$	32,169			$	31,316			$	51,419			$	69,251			$	86,314		$	131,035			$	223,791
% of North America Total Revenue		18		%		20		%		19		%		29		%		29		%		33	%		45		%		60		%

Gross Profit
Third Party and Other	$	111,562			$	125,036			$	130,209			$	128,219			$	168,404			$	166,964		$	143,070			$	138,774
Direct		–				–				–				–				910				6,903			17,498				12,786
Total	$	111,562			$	125,036			$	130,209			$	128,219			$	169,314			$	173,867		$	160,568			$	151,560
% of North America Total Revenue		82		%		80		%		81		%		71		%		71		%		67	%		55		%		40		%

Operating (Loss) Income Excl Stock-Based Compensation (SBC), Acquisition-Related Expenses	$	(21,778	)		$	(10,501	)		$	18,836			$	18,239			$	40,172			$	43,429		$	39,093			$	17,032
Year-over-year growth		N/A				(2,678	)	%		496		%		N/A				N/A				N/A			108		%		(7	)	%
% of Consolidated Operating (Loss) Income Excl SBC, Acq-Related		22		%		17		%		1,113		%		102		%		59		%		60	%		77		%		124		%
Operating Margin Excl SBC, Acq-Related (% of North America Total revenue)		(15.9	)	%		(6.7	)	%		11.7		%		10.2		%		16.8		%		16.7	%		13.4		%		4.5		%
Year-over-year growth (bps)		(5,879	)			(562	)			603				3,494				3,278				2,337			170				(570	)
Operating (Loss) Income TTM Excl SBC, Acq-Related	$	(40,901	)		$	(51,024	)		$	(35,348	)		$	4,796			$	66,746			$	120,676		$	140,933			$	139,726
Operating Margin TTM Excl SBC, Acq-Related (% of North America Total TTM revenue)		(12.9	)	%		(11.6	)	%		(6.5	)	%		0.8		%		9.1		%		14.4	%		14.5		%		12.0		%
Year-over-year growth (bps)		(3,604	)			(2,266	)			(1,467	)			596				2,197				2,601			2,100				1,120

International Segment:
Gross Billings ⁽¹⁾	$	353,022			$	559,259			$	756,232			$	755,061			$	801,243			$	738,401		$	665,887			$	801,500
Year-over-year growth		N/A				5,057		%		1,115		%		283		%		127		%		32	%		(12	)	%		6		%
Year-over-year growth, excluding FX⁽⁴⁾		N/A				4,587		%		1,021		%		287		%		138		%		45	%		(4	)	%		9		%
% of Consolidated Gross Billings		53		%		60		%		65		%		61		%		59		%		57	%		55		%		53		%
Gross Billings ⁽¹⁾ TTM	$	623,367			$	1,171,781			$	1,865,774			$	2,423,574			$	2,871,795			$	3,050,937		$	2,960,592			$	3,007,031

Revenue:
Third Party and Other Revenue⁽²⁾	$	158,911			$	235,377			$	261,464			$	298,872			$	309,069			$	295,866		$	265,019			$	247,351
Direct Revenue⁽²⁾		–				–				7,172				13,654				11,649				12,288			11,930				15,600
Total Revenue	$	158,911			$	235,377			$	268,636			$	312,526			$	320,718			$	308,154		$	276,949			$	262,951
Year-over-year growth		N/A				7,709		%		947		%		273		%		102		%		31	%		3		%		(16	)	%
Year-over-year growth, excluding FX ⁽⁴⁾		N/A				7,013		%		868		%		276		%		112		%		44	%		13		%		(14	)	%
% of Consolidated Revenue		54		%		60		%		62		%		64		%		57		%		54	%		49		%		41		%
Revenue TTM	$	271,440			$	503,803			$	746,785			$	975,450			$	1,137,257			$	1,210,034		$	1,218,347			$	1,168,772

Cost of Revenue:
Third Party and Other Cost of Revenue ⁽³⁾	$	14,715			$	22,634			$	31,023			$	35,463			$	40,049			$	36,877		$	38,698			$	36,903
Direct Cost of Revenue ⁽³⁾		–				–				5,707				9,383				10,198				11,993			12,053				21,778
Total Cost of Revenue	$	14,715			$	22,634			$	36,730			$	44,846			$	50,247			$	48,870		$	50,751			$	58,681
% of International Total Revenue		9		%		10		%		14		%		14		%		16		%		16	%		18		%		22		%

Gross Profit
Third Party and Other	$	144,196			$	212,743			$	230,441			$	263,409			$	269,020			$	258,989		$	226,321			$	210,448
Direct		–				–				1,465				4,271				1,451				295			(123	)			(6,178	)
Total	$	144,196			$	212,743			$	231,906			$	267,680			$	270,471			$	259,284		$	226,198			$	204,270
% of International Total Revenue		91		%		90		%		86		%		86		%		84		%		84	%		82		%		78		%

Operating (Loss) Income Excl SBC, Acq-Related	$	(76,506	)		$	(51,808	)		$	(20,528	)		$	(287	)		$	27,418			$	28,505		$	11,395			$	(3,329	)
Year-over-year growth		N/A				(125	)	%		21		%		100		%		N/A				155			N/A				1060		%
% of Consolidated Operating (Loss) Income Excl SBC, Acq-Related		78		%		83		%		(1,213	)	%		(2	)	%		41		%		40	%		23		%		(24	)	%
Operating Margin Excl SBC, Acq-Related (% of International Total revenue)		(48.1	)	%		(22.0	)	%		(7.6	)	%		(0.1	)	%		8.5		%		9.3	%		4.1		%		(1.3	)	%
Year-over-year growth (bps)		N/A				74,265				9,392				14,474				5,669				3,126			1,170				(120	)
Operating (Loss) Income TTM Excl SBC, Acq-Related	$	(247,063	)		$	(275,824	)		$	(270,298	)		$	(149,129	)		$	(45,205	)		$	35,108		$	67,031			$	63,989
Operating Margin TTM Excl SBC, Acq-Related (% of International Total TTM revenue)		(91.0	)	%		(54.7	)	%		(36.2	)	%		(15.3	)	%		(4.0	)	%		2.9	%		5.5		%		5.5		%
Year-over-year growth (bps)		N/A				70,992				13,508				13,628				8,704				5,765			4,170				2,080

Consolidated Results of Operations
Gross Billings ⁽¹⁾	$	668,174			$	929,249			$	1,157,210			$	1,230,868			$	1,354,800			$	1,286,676		$	1,218,256			$	1,520,452
Year-over-year growth		1,405		%		916		%		496		%		196		%		103		%		38	%		5		%		24		%
Year-over-year growth, excluding FX ⁽⁴⁾		1,378		%		859		%		465		%		198		%		108		%		47	%		11		%		25		%
Gross Billings ⁽¹⁾ (TTM)	$	1,369,139			$	2,206,964			$	3,169,902			$	3,985,501			$	4,672,127			$	5,029,554		$	5,090,600			$	5,380,184
Year-over-year growth		1,651		%		1,227		%		804		%		435		%		241		%		128	%		61		%		35		%

Revenue:
Third Party and Other Revenue ⁽²⁾	$	295,523			$	392,582			$	422,989			$	478,510			$	540,053			$	502,985		$	423,564			$	413,127
Direct Revenue ⁽²⁾		–				–				7,172				13,654				19,230				65,350			144,988				225,175
Total Consolidated Revenue	$	295,523			$	392,582			$	430,161			$	492,164			$	559,283			$	568,335		$	568,552			$	638,302
Year-over-year growth		1,358		%		915		%		426		%		186		%		89		%		45	%		32		%		30		%
Year-over-year growth, excluding FX ⁽⁴⁾		1,332		%		858		%		401		%		188		%		95		%		53	%		38		%		31		%
Total Consolidated Revenue TTMYear-over-year growth, excluding FX (1)	$	588,192			$	942,108			$	1,290,490			$	1,610,430			$	1,874,190			$	2,049,943		$	2,188,334			$	2,334,472
Year-over-year growth		1,594		%		1,205		%		761		%		415		%		219		%		118	%		70		%		45		%

Cost of Revenue:
Third Party and Other Cost of Revenue ⁽³⁾	$	39,765			$	54,803			$	62,339			$	86,882			$	102,629			$	77,032		$	54,173			$	63,905
Direct Cost of Revenue ⁽³⁾		–				–				5,707				9,383				16,869				58,152			127,613				218,567
Total Consolidated Cost of Revenue	$	39,765			$	54,803			$	68,046			$	96,265			$	119,498			$	135,184		$	181,786			$	282,472
% of Total Consolidated Revenue		13		%		14		%		16		%		20		%		21		%		24	%		32		%		44		%

Gross Profit
Third Party and Other	$	255,758			$	337,779			$	360,650			$	391,628			$	437,424			$	425,953		$	369,391			$	349,222
Direct		–				–				1,465				4,271				2,361				7,198			17,375				6,608
Total	$	255,758			$	337,779			$	362,115			$	395,899			$	439,785			$	433,151		$	386,766			$	355,830
% of Total Consolidated Revenue		87		%		86		%		84		%		80		%		79		%		76	%		68		%		56		%

Operating (Loss) Income Excl SBC, Acq-Related	$	(98,284	)		$	(62,309	)		$	(1,692	)		$	17,952			$	67,590			$	71,934		$	50,488			$	13,703
Year-over-year growth		N/A				(166	)	%		93.		%		N/A				N/A				N/A			N/A				(24	)	%
Operating Margin Excl SBC, Acq-Related (% of Total Consolidated revenue)		(33.3	)	%		(15.9	)	%		(0.4	)	%		3.6		%		12.1		%		12.7	%		8.9		%		2.1		%
Year-over-year growth (bps)		(7,611	)			4,471				2,760				8,689				4,534				2,853			930				(150	)
Operating (Loss) Income TTM Excl SBC, Acq-Related	$	(287,964	)		$	(326,848	)		$	(305,646	)		$	(144,333	)		$	21,541			$	155,784		$	207,964			$	203,715
Operating Margin TTM Excl SBC, Acq-Related (% of Total Consolidated TTM revenue)		(49.0	)	%		(34.7	)	%		(23.7	)	%		(9.0	)	%		1.1		%		7.6	%		9.5		%		8.7		%
Year-over-year growth (bps)		(7,208	)			(1,333	)			245				4,887				5,011				4,229			3,320				1,770

Operating (Loss) Income	$	(117,148	)		$	(101,027	)		$	(239	)		$	(14,972	)		$	39,639			$	46,485		$	25,438			$	(12,861	)
Year-over-year growth		N/A				(174	)	%		100		%		96.		%		N/A				N/A			N/A				14		%
Operating Margin (% of Total Consolidated revenue)		(39.6	)	%		(25.7	)	%		(0.1	)	%		(3.0	)	%		7.1		%		8.2	%		4.5		%		(2.0	)	%
Year-over-year growth (bps)		(8,192	)			6,949				6,838				19,213				4,673				3,391			457				100
Operating (Loss) Income TTM	$	(546,064	)		$	(610,272	)		$	(554,543	)		$	(233,386	)		$	(76,599	)		$	70,913		$	96,590			$	98,701
Operating Margin TTM (% of Total Consolidated TTM revenue)		(92.8	)	%		(64.8	)	%		(43.0	)	%		(14.5	)	%		(4.1	)	%		3.5	%		4.4		%		4.2		%
Year-over-year growth (bps)		(11,533	)			(2,457	)			1,427				11,983				8,875				6,824			4,740				1,870

Net (Loss) Income Attributable to Common Stockholders		(146,480	)			(107,406	)			(54,229	)			(65,379	)			(11,695	)			28,386			(2,979	)			(81,089	)
Weighted Average Basic Shares Outstanding		307,849				303,415				307,605				528,422				644,097				647,150			653,224				655,678
Weighted Average Diluted Shares Outstanding ⁽⁵⁾		307,849				303,415				307,605				528,422				644,097				663,123			653,224				655,678
Net (Loss) Earnings per Share
Basic	$	(0.48	)		$	(0.35	)		$	(0.18	)		$	(0.12	)		$	(0.02	)		$	0.04		$	(0.00	)		$	(0.12	)
Diluted	$	(0.48	)		$	(0.35	)		$	(0.18	)		$	(0.12	)		$	(0.02	)		$	0.04		$	(0.00	)		$	(0.12	)

(1)		Represents the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of estimated refunds. Includes direct billings and third party and other billings.
(2)		Third party revenue is related to sales for which the company acts as a marketing agent for the merchant. This revenue is recorded on a net basis. Direct revenue is related to the sale of products for which the Company is the merchant of record. These revenues are accounted for on a gross basis, with the cost of inventory included in cost of revenue.
(3)		Cost of revenue is comprised of direct and indirect costs incurred to generate revenue. Direct cost of revenue includes the purchase price of consumer products, warehousing, shipping costs and inventory markdowns. Third party cost of revenue includes estimated refunds for which the merchant’s share is not recoverable. Other costs incurred to generate revenue are allocated to cost of third party revenue, direct revenue and other revenue in proportion to relative gross billings during the period.
(4)		Represents change in financial measures that would have resulted had average exchange rates in the reported period been the same as those in effect in the prior year period.
(5)		The weighted-average diluted shares outstanding is calculated using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock units and restricted shares, as calculated using the treasury stock method.
(6)		Operating income excluding stock-based compensation and acquisition-related activities is a non-GAAP financial measure. The Company reconciles this measure to the most comparable U.S. GAAP measure, ‘‘Operating Income,” for the periods presented.
(7)		Foreign Exchange Rate neutral operating results are non-GAAP financial measures. The Company reconciles these measures to the most comparable U.S. GAAP measures, ‘‘Gross Billings” and “Revenue,” for the periods presented.
(8)		Year-over-year growth is unavailable for select international growth measures as Groupon did not commence international operations until the second quarter of 2010.
(9)		Free cash flow is a non-GAAP financial measure. The Company reconciles this measure to the most comparable U.S. GAAP measure, ‘‘Net cash provided by operating activities,” for the periods presented. See “Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities.”
(10)		Reflects the total number of unique accounts who have purchased Groupons during the trailing twelve months.
(11)		Reflects the total gross billings generated in the trailing twelve months per average active customer over that period.
(12)		Includes inside and outside merchant sales representatives, as well as sales support.
(13)		The definition, methodology, and appropriateness of each of our supplemental metrics is reviewed periodically. As a result, metrics are subject to removal and/or change.

Author: Serkadis

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