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AOL just announced that it has appointed Susan Lyne CEO of its brand group, and she will run the AOL operating unit that houses the company’s portfolio of brands.

There were already rumors being reported that she would be taking over all AOL content other than Huffington Post, though the company didn’t specifically mention this in its announcement. TechCrunch shares a company memo, however, which indicates that Arianna Huffington will still report to Tim Armstrong.

“In her roles as CEO then Chairman of Gilt, and previously as President and CEO of Martha Stewart Living Omnimedia, Susan has a proven track record of brand building and aggressive growth,” said AOL CEO Tim Armstrong. “I know she’ll bring that same drive and growth-oriented mentality to our Brand Group. AOL ended 2012 growing revenue for the first time in eight years, and we expect Susan to help build on this momentum and take our brands to the next level.”

“In my three years as an AOL board member, I have partnered with Tim Armstrong and my fellow directors to help drive the company’s transformation, and have seen AOL make great strides as it continues to innovate, grow and evolve,” said Lyne. “I’m looking forward to contributing to the company’s continued evolution in my new role, and will focus on creating additional value with all of AOL’s premium brands. Our efforts center on making all of our brands true destinations for audiences worldwide, and to provide marketers with innovative opportunities to connect with these audiences.”

Lyne will remain Vice Chairman of Gilt, a role she recently transitioned to from Chairman.

She has also served as President of ABC Entertainment, overseeing the development of shows like Desperate Housewives, Lost, and Grey’s Anatomy. Not bad experience to have as AOL continues to make a big video push.

AOL’s Chief Operating Officer, Arthur “Artie” Minson, who previously oversaw all three of AOL’s business unites: the Membership Group, AOL Networks, and the Brand Group, is stepping down. He will remain with the company for a transition period.

This week J.C. Penney released its fourth quarter earnings results and they were dismal. Comparable store sales nosedived by 31.7% in the fourth quarter of 2012 versus the prior year. Internet revenue sank by 34.4%, and gross margin dropped from 30.2% to 23.8%.

What’s causing this financial Armageddon? The sole culprit is J.C. Penney’s new “Fair and Square Every Day” low pricing strategy. In January 2012, Ron Johnson, Penney’s CEO, announced that instead of offering weekly sales, the retailer was reducing prices across the board. Johnson’s pitch to consumers was in essence, “Why wait for a sale? We have low prices all of the time.” To be clear, Johnson was not claiming that Penney’s everyday prices are the lowest, simply “fair.”

The problem with this strategy is that when a retailer sells fairly commoditized products in a generic selling environment — as Penney currently does — it needs sales to motivate consumers to visit a store. Penney’s financial results have clearly demonstrated that without deals, few people are waking up on Sunday morning thinking, “I have to go to J.C. Penney today to hang out and shop.” Fair and Square pricing has been in place for a year, and comparable store sales have progressively worsened, declining from -18.9% to -21.7% to -26.1% to -31.7% over the last four quarters.

While Mr. Johnson sought to shy away from deep discounts, Penney’s 6.4% drop in gross margin reveals that it acted otherwise. Since merchandise was not selling, it had to offer bargain basement clearance prices to move inventory, thus reducing gross margin. So ironically, over the last year the best deals in retail have likely been at J.C. Penney’s clearance rack.

In fairness to Johnson, he has ambitious plans to revitalize the venerable retail chain by offering differentiated products (80 – 100 branded boutiques) as well as a unique shopping experience. In essence, he is striving to make Penney the Apple Store of general merchandise retail. It’s an outstanding idea that could be the model of success for retail in general — provide unique value that insulates brick and mortar stores from intense web retailer price competition. Early on, I suggested that Penney ditch this new pricing strategy — and return to weekly sales — until it achieves the retail differentiation that on its own might draws customers into stores.

In this week’s earnings call, Johnson seemingly retreated on his Fair and Square pricing strategy. Early in the call, he stated, “We’ll offer sales each and every week as we move forward.” But Johnson’s mea culpa has been limited by his lack of clarity and wishy washy stance on pricing, both to consumers and Wall Street. In October, for instance, he sent an email to customers reinforcing his pitch of not having to wait for a sale or coupon to get a good deal — and then paradoxically included a $10 off coupon in the same email. Just on Monday, the Wall Street Journal reported that Johnson is reticent to use the word “sale” and while Penney has announced sales will be timed to “events and holidays,” he would not confirm how frequently they will occur.

The latest ambiguity comes in how consumers and Wall Street are to interpret the word “sale.” Late in this week’s earnings call, Johnson indicated that sales will primarily be held on J.C. Penney’s brand products, but typically not on national brands. So sure, in a technical sense Penney will be holding sales. But with rival retailers heavily discounting national brands every week, the key question is whether discounting Penney’s own brands will be enough to achieve the ultimate goal of a sale: drawing in customers to its stores and website.

While there may be some positive effects, I don’t think J.C. Penney’s “sales” will be enough to remedy its financial meltdown. To entice masses of consumers, you have to discount products that they really want — that means well-known national brands. Discounting lesser-known, private-label brands simply won’t achieve the financial upside that J.C. Penney desperately needs.

So what’s next for J.C. Penney? Either it further revises its pricing strategy to include sales on national brands or it heads to bankruptcy court.

The lines are blurring in the Platform-as-a-Service world. It used to be that if you developed in a given PaaS, you probably deployed in that PaaS. But that’s changing. For example,  CloudBees, the self-proclaimed Java-specific PaaS will now let developers that build applications on its DEV@cloud to deploy their work on Cloud Foundry, as well as on its own platform.

The goal is to make it easy for developers to develop what they want using CloudBees — taking advantage of its Jenkins-based continuous integration capabilities –  to deploy what they build where they want.

CloudBees CEO Sacha Labourey said his company focuses on the whole application life cycle, not just development, not just deployment. In October, the company announced a similar deal that lets its users deploy on Google App Engine.

“If you’re a GAE user you can subscribe to our services… it’ s not that we’re moving to Cloud Foundry as a company, it’s just that customers have freedom of choice. If you prefer GAE or Cloud Foundry to us for deployment, that’s fine,” he said.

CloudBees users wanting to deploy to Cloud foundry can sign up here. 

Here’s the thing about PaaS: Many developers love them because of the freedom and flexibility they offer when it comes to actual development. Moves like this one mean that deployment options for their finished code (if there is such a thing) are opening up as well.

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Debi Austin, who was a huge proponent for anti-smoking after being diagnosed with cancer of the larynx, died on Friday after a 20-year battle with the disease. She was 62 years old.

Austin began doing ads which showed the horrifying effects tobacco can have on a person’s body after having a laryngectomy; when her four-year old niece drew a black spot on her own neck to mimic the one left in Austin’s and said she wanted to be like her aunt, Austin realized she needed to do something proactive. The most popular ad became one which is still well-known in California–her home state–despite first being aired in the ’90s.

“Debi was a pioneer in the fight against tobacco and showed tremendous courage by sharing her story to educate Californians on the dangers of smoking. She was an inspiration for Californians to quit smoking and also influenced countless others not to start,” said Dr. Ron Chapman of the California Department of Public Health.

Austin said she started smoking when she was just 13 and made several attempts to quit, but never quite succeeded, even after the cancer took her vocal chords. She learned to speak esophageal speech, which she called “burp talk”, and used it in the startling ad that made her a famous symbol in the fight against smoking. Her family released a statement on her passing, saying she was a fighter until the very end.

“True to Debi’s spirit, she was a fighter to the end and leaves a big hole in our hearts and lives. Debi will be remembered fondly by who those who love her to be caring, courageous, very funny and always there to offer advice or lend a hand.”

Barnes & Noble has reported Q3 2013 earnings for the fiscal three-month period ending January 31, with a loss of $0.18 per share on quarterly revenues of $2.2 billion. That’s down 8.8 percent from the same period last year, when B&N reported gains of $0.71 per share.

Net losses in Q3 totaled $6.1 million, a clear drop from net earnings of $52 million a year ago.

Analysts predicted revenues of $2.4 billion, and an EPS of $.54. Last quarter saw revenues of $1.9 billion and losses of $0.04 per share.

Q3 has been a messy one for the retailer, which started out as a college text book store. The holiday period, which is usually a sure spike for retailers, left Barnes & Noble with a 10.9 percent sales decrease on B&N retail and BN.com from the same time last year. B&N blames this on declining Nook hardware sales at its retail locations.

Reports are floating around that Barnes & Noble may spin out its Nook hardware business, or perhaps focus its OEM vision on partnerships with Microsoft.

Barnes & Noble denies the reports, with CEO William Lynch stating today that the company is adjusting the Nook strategy and righting the segment’s cost structure. But based on the widening losses compared to Barnes & Noble’s glory days, a drastic change could be needed.

The Nook segment had revenues of $311 million during the nine-week period ending December 29, which was a 12.6 percent decrease from last year’s holiday Nook sales. All in all, Q3 saw a 26 percent YOY drop in Nook retail.

Barnes & Noble announced on January 28 that it would shutter nearly 1/3 of its retail stores, bringing its total number of locations from 689 to between 450 and 500 over the next decade.

Luckily, digital content sales rose 13.1 percent over that same nine-week holiday period, indicating that a departure from hardware and a focus on digital products could be the saving grace for the company.

The company also said on Valentine’s Day that it expected the Nook business to post an increased full-year loss, exceeding the $262 million loss seen in fiscal 2012. Though, B&N also expected losses to be less than $3 billion.

Apple’s educational arm of iTunes, iTunes U, has just hit a significant milestone according to the company. Apple has just announced that iTunes U has served over one billion content downloads since its launch back in 2007.

“It’s inspiring to see what educators and students of all types are doing with iTunes U,” said Eddy Cue, Apple’s senior vice president of Internet Software and Services. “With the incredible content offered on iTunes U, students can learn like never before―there are now iTunes U courses with more than 250,000 students enrolled in them, which is a phenomenal shift in the way we teach and learn.”

According to Apple, iTunes U currently caters to over 1,200 colleges and universities as well as 1,200 K-12 schools. In all, iTunes U offers more than 2,500 public courses, and “thousands” (unspecific) of smaller private ones.

iTunes U courses can be created in 30 countries, and are accessible in 155. Although Apple touts strong interest in the U.S. (a single Ohio State chemistry course enrolling 100,000 in just one year) over 60% of iTunes U app downloads come from an international audience.

Digital may be the future when it comes to publishing, but the problem today is that online publishing — and advertising specifically — doesn’t make enough money. Newspapers and magazines have spent years trying to find a business model to turn digital dimes into dollars from their web traffic.

We see an opportunity to as much as double the value media companies get from display advertising by creating an effective lead-generation machine. Publishers could package their insights about the people who visit their site and then deliver hot leads to advertisers at the point when customers are ready to buy.

Take a recent example. Among visitors to one US media site, 25 percent made an online fashion purchase within three months — twice the average for a typical online consumer. Their spending added up to a 13 percent share of total online fashion expenditures, worth some $4 billion out of a $34 billion market. If that media company could capture typical affiliate rates of 5 to 10 percent on the purchases it influenced, it could make at least $200 million a year from lead generation — roughly the same as it makes from banner ads under its current business model.

See now, buy later

The paradox of online shopping is that it takes seconds for customers to make a purchase, but days — sometimes weeks — for them to decide to purchase. The more complex and pricey the product, the longer it takes to make the decision. The decision journey that leads to this point typically takes place over multiple online sessions.

It’s no secret that banner ad performance tends to be poor, with an average click-through rate of less than 0.15 percent. That’s because the ads’ real job is to make an impression rather than to drive sales, as much as advertisers and publishers would like them to do so.

When we analyzed purchasing patterns for fashion goods at one media company’s site, we found that only 4 percent of purchasers bought anything during the same web session or by following a link on the company’s site. If the media company could understand and track the remaining 96 percent of buyers who purchase during a later web session, it could pass on their details at the right moment to advertisers in exchange for a share of the revenues. Media companies could provide leads to help improve ad targeting and landing page relevance. For example, media companies know not just that a visitor was checking out shoes or skirts on their site; they know whether the style was racy or traditional, and whether the product was a knock-off or a designer. Advertisers just don’t have that information, and they’ll pay to get it.

Becoming a hot-lead generator

So what does it take to capture this opportunity? Our advice:

• Think data. Most media companies have good metrics and decent analytics, but they may be looking at them the wrong way or using the wrong data. The key is to watch what people do when they visit your site and after they leave it to understand their patterns of behavior. To do that, you need to build tracking processes, infrastructure, and customer intelligence skills. You may also need to draw on external sources to supplement your own data, but keep the effort focused — it’s not about getting lots of data; it’s about using proprietary data and targeted analytics to yield insights into customer behavior.
• Encourage audience interaction. While visitors are consuming your content, get them to interact so you can catalog their tastes and preferences. The ubiquitous thumbs up/thumbs down is one option, but there are others. Stylebooks and pinboards like Polyvore and Pinterest are a great way to engage people and find out more about them; another is to track articles that people comment on or share. Pick product categories where you can really drive sales, and ideally consummate transactions.
• Keep ’em coming back. To build up your customer insights inventory, you need to keep your visitors coming back. Good content isn’t enough; follow up with tailored email programs promoting offers and rewards for engagement and loyalty. You’ll need to create a permanent memory of customers by using persistent cookies to ensure a consistent user identity that lets you track and understand behavior over the long term.
• Buddy up to e-commerce players. Build up a portfolio of partners spanning a range of business models and target segments. Work with your partners to understand what customers and information are valuable to them. Use the knowledge of your audience to alert your partners when a shopper is ready to buy, and give them clues about what he or she is looking for. Imagine that one of your users arrives at a travel-related site belonging to one of your e-commerce partners. The site checks to see if the user is a lead from your site and asks for useful information. Your site informs the travel site that the user has been reading about travel in Greece for the past three weeks and is probably ready to book a sailing holiday. The travel site then shows the visitor relevant packages that will encourage her to buy.

You don’t have to choose between advertising and generating leads; you can pursue both at once. Nor do you have to alienate your existing advertisers. Instead, renegotiate and show them they will get better value by paying you to deliver hot leads as well as show ads.

The economics of online publishing are tough. Securing a new revenue flow from lead generation could allow media companies to tip the balance of the business in their favor and transform their role in the e-commerce marketplace.

As good as it might sound, you can’t possibly spend every moment of the baseball season planted on a couch or a bar stool in front of a TV or at the stadium. You’ll have to go on about your daily life and responsibilities, but it doesn’t mean you  have to miss much of the action. MLB produces its own mobile app for fans to follow each game from their smartphone or other mobile device and this year’s edition, At Bat ’13, just arrived.

It comes with a few new features this year, including access to a lot of classic game footage. There are a couple of different subscription levels and pricing available, depending on your interest level/obsession with the game.

Here’s a video overview of what’s new in At Bat for the 2013 season.

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Microsoft has joined The Open Data Center Alliance (ODCA), an industry group that publishes usage models for Open Specifications for Cloud Computing. The Open Data Center Alliance is comprised of more than 300 companies that represent over $100 billion in annual IT spending.

“In line with Windows Azure’s commitment to openness and interoperability, we are pleased to join ODCA and work with industry leadership on standards for the cloud,” said Bill Hilf, general manager, Windows Azure. “We are dedicated to serving the industry and customers by providing an open, reliable and global approach to the cloud, and we look forward to contributing to the ODCA’s mission.”

ODCA aims to be a voice for enterprise IT in articulating the requirements for the transforming enterprise IT landscape with focus on topics including open, interoperable delivery of compute infrastructure as a service, cloud security, and best practices for adoption of big data analytics. Microsoft brings a valuable perspective to the organization.

“The ODCA brings together leaders from across industries to work together towards a vision of open, industry standard cloud solution delivery,” said Mario Mueller, BMW’s Vice President of IT Infrastructure and Chair of the Alliance. “In order to truly accelerate availability of cloud services, enterprise IT needs to work closely with cloud service and solution providers.  Microsoft’s participation is a valuable addition to the organization’s mission, and we heartily welcome their membership.”

Kibwe Tavares combines his training as an architect with his love of storytelling and animation to create futuristic 3D animated/live action films with social and political depth, creating incredibly detailed, vivid, and kinetic visual environments to entice audiences. His short film, Robots of Brixton, distributed on the internet, won a special jury prize at Sundance. And his film studio Factory Fifteen will soon release Jonah, about a giant jumping fish in Zanzibar (trailer shown, bottom).

Tell us about Robots of Brixton. 

It’s an event that happened at the start of my childhood. This event helped give the black community a voice, and helped put me in the position as the young black academic that I was when I made it. I thought it was an important story to retell, but I used tools I’d been working with, like character animation and visualization, to retell it in a more accessible way so that it wouldn’t be such a stereotypically black project and more accessible to wider audiences.

How do you integrate architecture into your films? 

Normally the city – or whatever the environment the setting is in – becomes very important, because everything happens somewhere. The city almost becomes a secondary character, which I’ll build up or design or exaggerate through my storytelling. The city and the design of the project is really as important as the story for me – almost as much as the story.

Did the spark of inspiration come from the set design or the story idea?

It was the story to start with, and then it was how I would execute that using my skill set. But the style is intrinsic to the story: it’s the stamp that I put on it.

You clearly have a real science-fiction aesthetic.

I’ve got the aesthetic, and I used to be well into manga. As an architect, you’re always thinking about the future, too. You build in narratives that are in the future, because you’re always thinking, “When I design a building, I’m designing it for what happens 10, 15 years into the future.” And when you start looking at the future, it’s hard not to have that kind of science-fiction element.

Barnes & Noble had warned investors that its third-quarter Nook earnings would be disappointing. The earnings report was released before the market opened Thursday morning, and indeed, Nook revenues — consisting of devices and digital content — were down 26 percent, to $316 million, despite the fact that Barnes  & Noble released two new tablets during the year. The company attributed the decline primarily to lower device sales. Digital content sales rose slightly, by 6.8 percent. Nook EBITDA losses were $190 million, compared to $83 million a year ago.

The company’s overall revenues for the third quarter of fiscal year 2013 were $2.2 billion, down 8.8 percent over last year. The company saw losses of $6.1 million, or -$0.18 per share, compared to earnings of $0.71 per share a year ago.

Today’s earnings come a few days after B&N’s founder, chairman and largest stockholder, Leonard Riggio, offered to buy the chain’s 689 retail stores and take them private. So how are those stores doing? Not well, but not as badly as Nook is doing. Over the holidays, Barnes & Noble bookstore chain saw sales down at its physical stores and at BN.com as well as in the Nook segment. For the quarter, retail sales were $1.5 billion, down 10.3 percent over last year, “attributable to a 7.3% decline in comparable store sales, store closures and lower online sales.” Core comparable store sales were down 2.2 percent. The company did not break out sales at BN.com.

In response to the problems at Nook, Barnes & Noble said in the earnings release that Nook “is calibrating its business model and has implemented a cost reduction program that the company projects will significantly reduce Nook’s expenses.” As a reminder, Nook is the segment of the business that’s supposed to be doing well: Barnes & Noble spun it off, along with the college bookstores, into a subsidiary called Nook Media last year, with investments from Microsoft and Pearson. For fiscal year 2013, the company said it expects Nook Media revenues to be $2.5 billion. Previously, it had estimated revenues of $3 billion for the segment.

In a statement, B&N CEO William Lynch said the company has “taken significant actions to begin to right size our cost structure in the Nook segment, while also taking a large markdown on Nook devices in order to enhance our ability to achieve our estimated sales plans in subsequent quarters.” Lynch said Nook “remains committed” to the tablet and e-reader business, likely in response to a New York Times article earlier this week that cited an unidentified source who said Barnes & Noble would “move away” from building devices.

Lynch also said, “Without question, our bookstores have made a significant contribution to Nook’s success over the past three years. And, in turn, our award-winning line of Nook’s products have proven to be a strong driver of traffic to our stores.”

Barnes & Noble is holding an investor call at 10 a.m. ET, and we will be on the call.

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Apple’s iTunes U education initiative hit 1 billion cumulative downloads, the company said Thursday. The service, which provides free access to lectures, videos, and course materials to teachers and educational groups, has been around since 2007. But it got a boost a year ago when Apple introduced a dedicated iTunes U app to go along with its iPad-oriented educational initiative, which included an iBooks authoring tool that would help textbook companies and educators create learning material.

Compared to some of Apple’s other software, 1 billion downloads in nearly six years may not seem like such a big deal. (The iOS App Store hit 40 billion downloads this year, less than five years in.) But the service is picking up steam. Apple released some other numbers as well that illustrate the size and scope of iTunes U:

• More than 1,200 colleges are using iTunes U
• 1,200 K-12 “schools and districts” are using it
• There are 2,500 public courses in use and “thousands” of private courses
• Some courses have more than 250,000 enrolled in them
• Access is available to students in 30 countries
• About 60 percent of iTunes U app downloads come from outside the U.S.

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Dozens of reports of cyber-attacks on U.S. companies originating in China have emerged over the past few years. But as these attacks were taking place, hackers in the U.S. were allegedly targeting at least two websites belonging to China’s military. China officials claim U.S. hackers targeted the Defense Ministry’s website and a site belonging to its newspaper, the People’s Liberation Army Daily, an average of 144,000 times per month in 2012, The Associated Press reported. Defense Ministry spokesman Geng Yansheng issued the accusation, and said that the Chinese military has never supported any hacking activity targeting the U.S. “Like other countries, China faces a serious threat from hacking and is one of the primary victims of hacking in the world,” Geng told reporters. “Numbers of attacks have been on the rise in recent years.”

Streaming music radio service Pandora has just announced that it will be ending free unlimited streaming for mobile users. Before you grab your pitchforks, Pandora is assuring users that this will only affect a very small portion of its mobile listeners.

Starting this week, free mobile listening will be limited to 40 hours per month. According to Pandora, most users won’t have to worry about this change because the average listener only streams about 20 hours worth of music per month. They say that less than 4% of the company’s total monthly active listeners will even be affected by this.

It appears to be all about costs. Apparently, Pandora’s per-track royalty rates have gone up over 25% in the last 3 years, and are only going to go up over the next few years.

Pandora knows that this isn’t something users want to hear, but the costs must be mitigated.

“Limiting listening is a very unusual thing to do, and very contrary to our mission,” says the company in a blog post.

Pandora promises that they will alert anyone who is fast approaching the 40-hour limit. If you’re about to cross the barrier, you have three options. You can simply stop listening, or you can pay $0.99 for unlimited access for the remainder of the month. There’s also the option to purchase Pandora’s premium subscription, Pandora One, which will keep your listening unlimited and knock out all advertising.

It’s important to note that this limit only affects mobile listeners. You can still stream as many hours per month as you want at home.

Last month, Pandora announced that users had listened to over 13 billion hours of music and created over 1.6 billion stations in 2012.

Kaley Cuoco, one of the stars of “The Big Bang Theory”, has found herself in some hot water recently after tweeting an endorsement for Dish Network. Seems her bosses over at CBS don’t like it when one of their stars helps out a company they’re in litigation with.

Dish Network has been locked in a battle not just with CBS, but also with ABC, FOX, and NBC over a feature included in their Hopper service which allows users to “Auto Hop” through previously-aired shows while skipping commercials. While Cuoco didn’t mention Auto Hop in her tweet, she did speak highly of the Hopper service, and the post quickly garnered the attention of thousands in a matter of hours. Once that happened, however, the tweet mysteriously disappeared.

“Clearly, with this kind of response, consumers have a true interest in the types of innovations the DISH Hopper offers,” said Dish president Joe Clayton. “It’s a shame that CBS, despite its legacy, feels it needs to thwart this kind of consumer demand.”

The networks, on the other hand, feel that the service poses a serious threat to their shows–many of which rely on ad support to keep afloat–and say that the Auto Hop feature should be illegal.

Cuoco, along with her 1 million followers, is certainly a good get for Dish; they say they look for celebrities with influence who are also likable, and she certainly falls into that category.

“We’ve reached out to several different celebrities and those with influence for sponsored tweets and so I think she’s one of many folks,” Dish spokesman John Hall said. “Our goal is to introduce our products and services to consumers. We find people that consumers are paying attention to.”

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.