The following discussion highlights certain risks that may affect future
operating results and share price. These are the risks and uncertainties we believe are most important for our existing and potential stockholders to consider. Additional risks and uncertainties not presently known to us, which we currently deem
immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer.
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Risks Relating to Our Business
Because we depend on our ability to generate revenues from the sale of advertising campaigns, fluctuations in advertising spending could have an adverse
effect on our operating results.
The primary source of our revenues is the sale of advertising campaigns to our customers. Our
advertising revenues accounted for substantially all of our total revenues for the three months ended June 30, 2014. We believe that advertising spending on the Internet, as in traditional media, fluctuates significantly as a result of a
variety of factors, many of which are outside of our control. These factors include:
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variations in expenditures by advertisers due to budgetary constraints;
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the cancellation or delay of projects by advertisers;
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the cyclical and discretionary nature of advertising spending;
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general economic conditions, as well as economic conditions specific to the Internet and online and offline media industry; and
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the occurrence of extraordinary events, such as natural disasters and international or domestic political and economic unrest.
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Because all of our customers are in the IT industry, our revenues are subject to characteristics of the IT industry that can affect advertising
spending by IT vendors.
The IT industry is characterized by, among other things, volatile quarterly results, uneven sales
patterns, short product life cycles, rapid technological developments and frequent new product introductions and enhancements. As a result, our customers advertising budgets, which are often viewed as discretionary expenditures, may increase
or decrease significantly over a short period of time. In addition, the advertising budgets of our customers may fluctuate as a result of:
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weakness in corporate IT spending, resulting in a decline in IT advertising spending, a continued trend that we have seen and that may continue;
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increased concentration in the IT industry as a result of consolidations, leading to a decrease in the number of current and prospective customers, as well as an overall reduction in advertising;
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reduced spending by combined entities following such consolidations;
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the timing of advertising campaigns around new product introductions and initiatives; and
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economic conditions specific to the IT industry.
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Our future growth will depend in large part on
continued increased sales of our IT Deal Alert product suite.
In 2013, we began selling a new suite of products called IT Deal
Alert, which is based on our Activity Intelligence analytics. The IT Deal Alert product suite currently consists of Qualified Sales Opportunities and, as announced in March 2014, Account Watch. Our increase in revenues in the first half of 2014,
compared to the comparable period of 2013, was, in part, attributable to sales of IT Deal Alert products. We expect that IT Deal Alert, as well as the expansion of our IT Deal Alert product offerings, will be major components of our future growth.
The failure of our IT Deal Alert products to meet anticipated sales levels, our inability to continue to expand successfully our IT Deal Alert product suite, or the failure of our current or new IT Deal Alert Products to achieve and then maintain
widespread customer acceptance would likely have a material adverse effect on our business and financial results. In addition, competitors may develop a service or application that is similar to our IT Deal Alert product suite, which may also result
in reduced sales levels for our product offerings.
There are a number of risks associated with expansion of our business internationally that could
adversely affect our business.
Approximately 23% of our revenues for the three months ended June 30, 2014 were derived from
customers with billing addresses outside of the United States and approximately 30% of our revenues were derived from geo-targeted campaigns, where our target audience is outside North America. We have license and other arrangements in various
countries, and maintain direct presences in the United Kingdom, France, Singapore and Australia, as well as operations in China, and Spanish, French, Portuguese and German language websites.
In addition to facing many of the same challenges we face domestically, there are additional risks and costs inherent in expanding our
business in international markets, including:
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limitations on our activities in foreign countries where we have granted rights to existing business partners;
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continuation of the trend among our foreign-based customers to transition from print to online advertising;
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the adaptation of our websites and advertising programs to meet local needs and to comply with local legal and regulatory requirements;
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our foreign-based competitors having greater resources and longer established relationships with local advertisers;
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varied, unfamiliar and unclear legal and regulatory restrictions, as well as unforeseen changes in legal and regulatory requirements;
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more restrictive data protection regulation, which may vary by country;
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more extensive labor regulation, which may vary by country;
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difficulties in staffing and managing multinational operations;
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difficulties in finding appropriate foreign licensees or joint venture partners;
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distance, language and cultural differences in doing business with foreign entities;
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foreign political and economic uncertainty;
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less extensive adoption of the Internet as an information source and increased restriction on the content of websites;
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currency exchange-rate fluctuations; and
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potential adverse tax requirements.
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As a result, we may face difficulties and unforeseen
expenses in expanding our business internationally and, even if we attempt to do so, we may be unsuccessful, which could harm our business, operating results and financial condition.
There are substantial uncertainties regarding the interpretation and application of the laws and regulations of the Peoples Republic of
China, or PRC, including, but not limited to, the laws and regulations governing our business in the PRC, and the enforcement and performance of the contractual arrangements between our wholly-owned subsidiary, TechTarget (Beijing) Information
Technology Consulting Co., Ltd, or TTGT China, and our affiliated Chinese entity, Keji Wangtuo (Beijing) Information Technology Co., Ltd, or Keji Wangtuo, and its shareholders. We are considered a foreign person under PRC law. As a result, we are
subject to PRC law limitations on foreign ownership of companies engaged in value-added telecommunications services, including internet-related services, and advertising. Accordingly, we operate our websites and our online advertising business in
China through Keji Wangtuo, a company wholly-owned by two citizens of the PRC; we have no equity ownership interest in Keji Wangtuo. Keji Wangtuo holds the licenses and approvals necessary to operate our websites and online advertising business in
China. Through our wholly-owned subsidiary, TTGT China, we have contractual arrangements with Keji Wangtuo and its shareholders that allow us to substantially control and operate Keji Wangtuo and give us the economic benefit of those operations. We
cannot be sure that we will be able to enforce these contracts. In addition, such contractual arrangements may not prove as effective in exercising control over Keji Wangtuo as direct ownership. Although we believe we are in compliance with current
PRC regulations, we cannot be sure that the Chinese government would agree that our operating and equity arrangements with Keji Wangtuo comply with Chinese law. If the Chinese government determines that we are not in compliance with applicable law,
it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, block our websites in China, require us to restructure our Chinese operations, impose additional
conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business in China.
The general economic, business or industry conditions may adversely affect our business, as well as our ability to forecast financial results.
The domestic and international economies have continued to experience ongoing instability and inconsistent, unpredictable growth.
This period of instability has been magnified by factors including changes in the availability of credit, volatile business and consumer confidence and fluctuating unemployment. These and other
macro-economic
conditions have contributed to unpredictable changes in the global economy and expectations of future global economic growth. If the economic climate in the United States and abroad remains as it is or deteriorates, our customers or potential
customers could reduce or delay their purchases of our offerings, which would adversely impact our revenues and our ability to sell our offerings, collect customer receivables and, ultimately, our profitability. Additionally, future economic
conditions continue to have a high degree of inherent uncertainty. As a result, it continues to be difficult to estimate the level of growth or contraction for the economy as a whole, as well as for the various sectors of the economy, such as the IT
market. Because all components of our budgeting and forecasting are dependent upon estimates of growth or contraction in the IT market and demand for our offerings, the prevailing economic uncertainties continue to render accurate estimates of
future income and expenditures very difficult to make. We cannot predict the duration of current economic conditions or the duration or strength of an economic recovery, worldwide in the IT industry or in any of the different segments of the IT
industry. Further adverse changes may occur as a result of global, domestic or regional economic conditions, changing consumer confidence, unemployment, declines in stock markets, or other factors affecting economic conditions generally. These
changes may negatively affect the sales of our offerings, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, or increase the risk of loss on investments. Any recent growth we have experienced
internationally would be negatively affected by any future global downturn.
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Lingering effects of financial market instability and continued uncertain conditions in the United States
and global economies have in the past and could in the future adversely affect our revenues and operating results.
We believe that
the lingering effects of the instability affecting the financial markets and any further deterioration in the current business climate within the United States and/or certain other geographic regions in which we do business have had, and could
continue to have, a negative impact on our revenue growth and operating results. Because all of our clients are in the IT industry, the success of our business is intrinsically linked to the health, and subject to market conditions, of the IT
industry, and regional, domestic and global economic conditions. In turn, many of our customers have reassessed and will, for the foreseeable future, be likely to continue to scrutinize their spending on advertising campaigns. Prior market downturns
in the IT industry have resulted in declines in advertising spending, which can cause longer sales cycles, deferral or delay of purchases by IT vendors and generally reduced expenditures for advertising and related services. Our revenues and
profitability depend on the overall demand for advertising services from our customers. We believe that demand for our offerings has been in the past, and could be in the future, disproportionately affected by fluctuations, disruptions, instability
or downturns in the economy and the IT industry, which may cause customers and potential customers to exit the industry or delay, cancel or reduce any planned expenditures for our advertising offerings. Furthermore, competitors have and may continue
to respond to market conditions by lowering prices and attempting to lure away our customers and prospects to lower cost offerings. In addition, any slowdown in the formation of new IT companies, or decline in the growth of existing IT companies,
may cause a decline in demand for our offerings.
Our quarterly operating results are subject to fluctuations, and these fluctuations may adversely
affect the trading price of our common stock.
We have experienced fluctuations in our quarterly revenues and operating results.
Our quarterly revenues and operating results may fluctuate from quarter to quarter due to a number of factors, many of which are outside of our control. In addition to the factors described elsewhere in this Risk Factors section, these
factors include:
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the spending priorities and advertising budget cycles of specific advertisers;
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the addition or loss of advertisers;
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the addition of new sites and services by us or our competitors; and
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seasonal fluctuations in advertising spending, based on product launch schedules, annual budget approval processes for our customers and the historical decrease in advertising and events activity in the summer months.
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Due to such risks, you should not rely on quarter-to-quarter comparisons of our results of operations as an indicator of
our future results. Due to the foregoing factors, it is also possible that our results of operations in one or more quarters may fall below the expectations of investors and/or securities analysts. In such an event, the trading price of our common
stock is likely to decline.
Our revenues are primarily derived from short-term contracts that may not be renewed.
The primary source of our revenues is the sale of advertising to our customers, and we expect that this will continue to be the case for the
foreseeable future. Our advertising contracts are primarily short-term, typically six months or less, and are generally subject to termination without substantial penalty by the customer at any time, generally with minimal notice requirements. We
cannot assure you that our current customers will fulfill their obligations under their existing contracts, continue to participate in our existing programs beyond the terms of their existing contracts or enter into any additional contracts for new
programs that we offer. In addition, our efforts to enter into longer term arrangements with customers for our IT Deal Alert services may not be successful. If a significant number of advertisers or a few large advertisers decided not to continue
advertising on our websites or conducting or sponsoring events, we could experience a rapid decline in our revenues over a relatively short period of time.
If we are unable to deliver content and services that attract and retain users, our ability to attract advertisers may be affected, which could in turn
have an adverse effect on our revenues.
Our future success depends on our continued ability to deliver original and compelling
content and services to attract and retain users. Our user base is composed of corporate IT professionals who demand specialized websites and events tailored to the sectors of the IT products for which they are responsible and that they purchase.
Our content and services may
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not be attractive to a sufficient number of users to attract advertisers and generate revenues consistent with our estimates. We also may not develop new content or services in a timely or
cost-effective manner. Our ability to develop and produce this specialized content successfully is subject to numerous uncertainties, including our ability to:
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anticipate and respond successfully to rapidly changing IT developments and preferences to ensure that our content remains timely and interesting to our users;
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attract and retain qualified editors, writers and technical personnel;
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fund new development for our programs and other offerings;
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successfully expand our content offerings into new platform and delivery mechanisms; and
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promote and strengthen the brands of our websites and our name.
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If we are not successful in
maintaining and growing our user base, our ability to retain and attract advertisers may be affected, which could in turn have an adverse effect on our revenues.
Our inability to sustain our historical advertising rates could adversely affect our operating results.
The market for advertising has fluctuated over the past few years. If we are unable to maintain historical pricing levels for advertising on
our websites and for sponsorships at our events, our revenues could be adversely affected.
Competition for advertisers is intense, and we may not
compete successfully, which could result in a material reduction in our market share, the number of our advertisers and our revenues.
We compete for potential advertisers with a number of different types of offerings and companies, including:
broad-based
media outlets, such as television, newspapers and business periodicals that are designed to reach a wide audience; general purpose portals and search engines; and offline and online offerings of
media companies that produce content specifically for IT professionals, including International Data Group, United Business Media, QuinStreet and CNet. Advertisers may choose our competitors over us not only because they prefer our competitors
online and events offerings to ours but also because advertisers prefer to utilize other forms of advertising offered by our competitors that are not offered by us and/or to diversify their advertising expenditures. Many of our current and potential
competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we have. As a result, we could lose market share to our competitors in one or more
of our businesses and our revenues could decline.
We depend upon Internet search engines to attract a significant portion of the users who visit
our websites, and if we were listed less prominently in search result listings, our business and operating results would be harmed.
We derive a significant portion of our website traffic from users who search for IT purchasing content through Internet search engines, such as
Google, MSN, Bing and Yahoo!. A critical factor in attracting users to our websites is whether we are prominently displayed in response to an Internet search relating to IT content. Search result listings are determined and displayed in accordance
with a set of formulas or algorithms developed by the particular Internet search engine. The algorithms determine the order of the listing of results in response to the users Internet search. From time to time, search engines revise their
algorithms. In some instances, these modifications may cause our websites to be listed less prominently in unpaid search results, which will result in decreased traffic from search engine users to our websites. Our websites may also become listed
less prominently in unpaid search results for other reasons, such as search engine technical difficulties, search engine technical changes and changes we make to our websites. In addition, search engines have deemed the practices of some companies
to be inconsistent with search engine guidelines and have decided not to list their websites in search result listings at all. If we are listed less prominently or not at all in search result listings for any reason, traffic to our websites will
likely decline, which could harm our operating results. If we decide to attempt to replace this traffic, we may be required to increase our marketing expenditures, which also could harm our operating results.
We may not innovate at a successful pace, which could harm our operating results.
Our industry is rapidly adopting new technologies and standards to create and satisfy the demands of users and advertisers. It is critical that
we continue to innovate by anticipating and adapting to these changes to ensure that our
content-delivery,
lead generation and IT Deal Alert products platforms and services remain effective and interesting to
our users, advertisers and partners. In addition, we may discover that we must make significant expenditures to achieve these goals. If we fail to accomplish these goals, we may lose users and the advertisers that seek to reach those users, which
could harm our operating results. Existing and planned efforts to develop new products, including any subscription-based offerings, may be costly and ultimately not successful.
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We may be unable to continue to build awareness of our brands, which could negatively impact our business
and cause our revenues to decline.
Building and maintaining recognition of our brands is critical to attracting and expanding our
online user base and attendance at our events. We intend to continue to build existing brands and introduce new brands that will resonate with our targeted audiences, but we may not be successful. In order to promote these brands, in response to
competitive pressures or otherwise, we may find it necessary to increase our marketing budget, hire additional marketing and public relations personnel or otherwise increase our financial commitment to creating and maintaining brand loyalty among
our clients. If we fail to promote and maintain our brands effectively, or incur excessive expenses attempting to promote and maintain our brands, our business and financial results may suffer.
If we do not retain our key personnel, our ability to execute our business strategy will be adversely affected.
Our continued success depends to a significant extent upon the recruitment, retention and effective succession of our executive officers and
key management. Our management team has significant industry experience and would be difficult to replace. These individuals possess sales, marketing, financial and administrative skills that are critical to the operation of our
business. The competition for these employees is intense. The loss of the services of one or more of our key personnel could have a material adverse effect on our operating results.
We may not be able to attract, hire and retain qualified personnel cost-effectively, which could impact the quality of our content and services and the
effectiveness and efficiency of our management, resulting in increased costs and losses in revenues.
Our success depends on our
ability to attract, hire and retain qualified technical, editorial, sales and marketing, customer support, financial and accounting and other managerial personnel at commercially reasonable rates. The competition for personnel in the industries in
which we operate is intense. Our personnel may terminate their employment at any time for any reason. Loss of personnel may also result in increased costs for replacement hiring and training. If we fail to attract and hire new personnel or retain
and motivate our current personnel, we may not be able to operate our businesses effectively or efficiently, serve our customers properly or maintain the quality of our content and services. In particular, our success depends in significant part on
maintaining and growing an effective sales force. This dependence involves a number of challenges, including:
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the need to hire, integrate, motivate and retain additional sales and sales support personnel;
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the need to train new sales personnel, many of whom lack sales experience when they are hired; and
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competition from other companies in hiring and retaining sales personnel.
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We may fail to identify or
successfully acquire and integrate businesses, products and technologies that would otherwise enhance our service offerings to our customers and users, and as a result our revenues may decline or fail to grow.
We have acquired, and in the future may acquire or invest in, complementary businesses, products or technologies. Acquisitions and investments
involve numerous risks including:
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difficulty in assimilating the operations and personnel of acquired businesses;
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potential disruption of our ongoing businesses and distraction of our management and the management of acquired companies;
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difficulty in incorporating acquired technology and rights into our offerings and services;
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unanticipated expenses related to technology and other integration;
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potential failure to achieve additional sales and enhance our customer bases through cross marketing of the combined companys services to new and existing customers;
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potential detrimental impact to our pricing based on the historical pricing of any acquired business with common clients and the market generally;
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potential litigation resulting from our business combinations or acquisition activities; and
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potential unknown liabilities associated with the acquired businesses.
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Our inability to
integrate any acquired business successfully, or the failure to achieve any expected synergies, could result in increased expenses and a reduction in expected revenues or revenue growth. As a result, our stock price could fluctuate or decline. In
addition, we cannot assure you that we will be successful in expanding into complementary sectors in the future, which could harm our business, operating results and financial condition.
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The costs associated with potential acquisitions or strategic partnerships could dilute your investment or
adversely affect our results of operations.
In order to finance acquisitions, investments or strategic partnerships, we may use
equity securities, debt, cash, or a combination of the foregoing. Any issuance of equity securities or securities convertible into equity may result in substantial dilution to our existing stockholders, reduce the market price of our common stock,
or both. Any debt financing is likely to have financial and other covenants that could have an adverse impact on our business if we do not achieve our projected results. In addition, the related increases in expenses could adversely affect our
results of operations.
We have limited protection of our intellectual property and could be subject to infringement claims that may result in
costly litigation, the payment of damages or the need to revise the way we conduct our business.
Our success and ability to
compete are dependent in part on the strength of our proprietary rights, on the goodwill associated with our trademarks, trade names and service marks, and on our ability to use United States and foreign laws to protect them. Our intellectual
property includes, among other things, our original content, our editorial features, logos, brands, domain names, the technology that we use to deliver our services, the various databases of information that we maintain and make available by
license, and the appearances of our websites. We claim common law protection on certain names and marks that we have used in connection with our business activities. Although we have applied for and obtained registration of some of our marks in
countries outside of the United States where we do business, we have not been able to obtain registration of all of our key marks in such jurisdictions, in some cases due to prior registration or use by third parties employing similar marks. In
addition to United States and foreign laws, we rely on confidentiality agreements with our employees and third parties and protective contractual provisions to safeguard our intellectual property. Policing our intellectual property rights worldwide
is a difficult task, and we may not be able to identify infringing users, or, if identified, stop them from continuing to infringe our intellectual property. We cannot be certain that third-party licensees of our content will always take actions to
protect the value of our proprietary rights and reputation. Intellectual property laws and our agreements may not be sufficient to prevent others from copying or otherwise obtaining and using our content or technologies. In addition, others may
develop non-infringing technologies that are similar or superior to ours. In seeking to protect our marks, copyrights, domain names and other proprietary rights, or in defending ourselves against claims of infringement that may be with or without
merit, we could face costly litigation and the diversion of our managements attention and resources. These claims could result in the need to develop alternative trademarks, content or technology or to enter into costly royalty or licensing
agreements, which could have a material adverse effect on our business, results of operations and financial condition. We may not have, in all cases, conducted formal evaluations to confirm that our technology and services do not or will not
infringe upon the intellectual property rights of third parties. As a result, we cannot be certain that our technology, offerings, services or online content do not or will not infringe upon the intellectual property rights of third parties. If we
were found to have infringed on a third-partys intellectual property rights, the value of our brands and our business reputation could be impaired, and our business could suffer.
Our business could be harmed if we are unable to correspond with existing and potential users by e-mail.
We use e-mail as a significant means of communicating with our existing users. The laws and regulations governing the use of e-mail for
marketing purposes continue to evolve, and the growth and development of the market for commerce over the Internet may lead to the adoption of additional legislation and/or changes to existing laws. If new laws or regulations are adopted, or
existing laws and regulations are interpreted and/or amended or modified to impose additional restrictions on our ability to send e-mail to our users or potential users, we may not be able to communicate with them in a cost-effective manner. In
addition to legal restrictions on the use of e-mail, Internet service providers and others typically attempt to block the transmission of unsolicited e-mail, commonly known as spam. If an Internet service provider or software program
identifies e-mail from us as spam, we could be placed on a restricted list that would block our e-mail to users or potential users who maintain e-mail accounts with these Internet service providers or who use these software programs. If
we are unable to communicate by e-mail with our users and potential users as a result of legislation, blockage or otherwise, our business, operating results and financial condition could be harmed.
Changes in laws and standards relating to data collection and use, and the privacy of Internet users and other data could impair our efforts to
maintain and grow our audience and thereby decrease our advertising revenue.
We collect information from our users who register on
our websites or for services or respond to surveys. Subject to each users permission (or right to decline, which we refer to as an opt-out, a practice that may differ across our various websites, depending on the applicable needs
and requirements of different countries laws), we may use this information to inform our users of services that they have indicated may be of interest to them. We may also share this information with our
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advertising clients for registered members who have elected to receive additional promotional materials and have granted us permission to share their information with third parties. We also
collect information on our registered members and users based on their activity on our sites. The United States federal and various state governments have adopted or proposed limitations on the collection, distribution and use of personal
information of Internet users. Additionally, several foreign jurisdictions, including the European Union, and the United Kingdom, and Canada, have adopted legislation (including directives or regulations) that may increase the requirements for
collecting, or limit our collection and use of, information from Internet users in these jurisdictions. In addition, growing public concern about privacy, data security and the collection, distribution and use of personal information has led to
self-regulation of these practices by the Internet advertising and direct marketing industry, and to increased federal and state regulation. In addition, in May 2014, the Obama administration released a report that advocates a framework to address
online consumer privacy. Among other things, the report renews calls for privacy legislation based on a Consumer Privacy Bill of Rights. The proposed Consumer Bill of Rights would notably allow consumers the right to exercise control over the
collection and use of personal data, including the ability to access and correct personal data, for such personal data to be collected and used in accordance with easily understandable privacy and security policies and expect the secure and
responsible handling of personal data. The Obama administration has asked the United States Department of Commerce to work with industry, privacy advocates and other stakeholders to draft legislative text to implement the principles outlined in the
White House report. Because many of the proposed laws or regulations are in their early stages, we cannot yet determine the impact these regulations may have on our business over time. Although, to date, our efforts to comply with applicable federal
and state laws and regulations have not hurt our business, additional, more burdensome laws or regulations, including more restrictive consumer privacy and data security laws, could be enacted or applied to us or our customers. Such laws or
regulations could impair our ability to collect user information that helps us to provide more targeted advertising to our users and detailed lead data to our advertising clients, thereby impairing our ability to maintain and grow our audience and
maximize advertising revenue from our clients. Additionally, the FTC and many state attorneys general are applying federal and state consumer protection laws to require that the online collection, use and dissemination of data, and the presentation
of Web site content, comply with certain standards for notice, choice, security and access. Courts may also adopt these developing standards. In many cases, the specific limitations imposed by these standards are subject to interpretation by courts
and other governmental authorities. A few states have also introduced legislation that, if enacted, would restrict or prohibit behavioral advertising within the state. In the absence of a federal law pre-empting their enforcement, such state
legislation would likely have the practical effect of regulating behavioral advertising nationwide because of the difficulties behind implementing state-specific policies or identifying the location of a particular user. In the event of additional
legislation in this area, our ability to effectively target our users may be limited. We believe that we are in compliance with applicable consumer protection laws that apply to us, but a determination by a state or federal agency or court that any
of our practices do not meet these laws and regulations could create liability to us, result in adverse publicity and affect negatively our businesses. New interpretations of these standards could also require us to incur additional costs and
restrict our business operations.
As we deploy new products, we will need to update our privacy policy to describe any relevant changes
to our practices. Failure to do so could give rise to federal or state enforcement actions or lawsuits that could materially affect our business. In addition, several foreign governmental bodies, including the European Union, the United Kingdom, and
Canada have regulations dealing with the collection and use of personal information obtained from their citizens. Regulations in these territories have focused on the collection, use, disclosure and security of information that may be used to
identify or that actually identifies an individual, such as an e-mail address or a name. Further, within the European Union, certain member state data protection authorities regard IP addresses as personal information, and legislation in the
European Union requires informed consent for the placement of a cookie on a user device. We believe that we are in material compliance with such regulations as applicable to us; however, such regulations and laws may be modified and new laws may be
enacted in the future. Further, data protection authorities may interpret existing laws in new ways. Any such developments (or developments stemming from enactment or modification of other laws) or the failure to anticipate accurately the
application or interpretation of these laws could create liability to us, result in adverse publicity and negatively affect our businesses.
United States and European lawmakers and regulators have recently expressed concern over the use of third party cookies or web beacons for the
purpose of online behavioral advertising, and efforts to address these uses may result in broader requirements that would apply to research activities, including understanding our users Internet usage. Such actions may have a chilling effect
on businesses that collect or use online usage information generally or substantially increase the cost of maintaining a business that collects or uses online usage information, increase regulatory scrutiny and increase the potential of class action
lawsuits. In response to marketplace concerns about the usage of third party cookies and web beacons to track user behaviors, the major browser applications have enabled features that allow the user to limit the collection of certain data. These
developments could impair our ability to collect user information that helps us provide more targeted advertising to our users. In addition, several browser applications, including but not limited to Microsofts Internet Explorer, Mozilla
Firefox, Google Chrome and Apples Safari browser contain tracking protection features and options that allow users to opt-out of ad-tracking cookies and in certain cases block behavioral tracking from specified websites. In the event users
implement these tracking features and options, they have the potential to affect our business negatively.
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Increased exposure from loss of personal information could impose significant additional costs on us.
Many states and foreign jurisdictions in which we operate have enacted regulations requiring us to notify customers in the event
that certain customer information is accessed, or believed to have been accessed, without authorization and in some cases also develop proscriptive policies to protect against such unauthorized access. Such notifications can result in private causes
of action being filed against us. Additionally, increasing regulatory demands are requiring us to provide protection of personal information to prevent identity theft and the disclosure of sensitive information. Should we experience a loss of
protected data, efforts to regain compliance and address penalties imposed by such regulatory regimes could increase our costs.
Changes in
regulations could adversely affect our business and results of operations.
It is possible that new laws and regulations or new
interpretations of existing laws and regulations in the United States and elsewhere will be adopted covering issues affecting our business, including:
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privacy, data security and use of personally identifiable information;
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copyrights, trademarks and domain names; and
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marketing practices such as behavioral advertising, e-mail or direct marketing.
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Increased
government regulation, or the application of existing laws to online activities, could:
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decrease the growth rate of the Internet;
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increase our operating expenses; or
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expose us to significant liabilities.
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Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary rights is still evolving. Therefore, we might be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our
trademarks and other proprietary rights. Any impairment in the value of these important assets could cause our stock price to decline. We cannot be sure what effect any future material noncompliance by us with these laws and regulations or any
material changes in these laws and regulations could have on our business, operating results and financial condition.
As a creator and a
distributor of content over the Internet, we face potential liability for legal claims based on the nature and content of the materials that we create or distribute.
Due to the nature of content published on our online network, including content placed on our online network by third parties, and as a creator
and distributor of original content and research, we face potential liability based on a variety of theories, including defamation, negligence, copyright or trademark infringement, or other legal theories based on the nature, creation or
distribution of this information. Such claims may also include, among others, claims that by providing hypertext links to websites operated by third parties, we are liable for wrongful actions by those third parties through these websites. Similar
claims have been brought, and sometimes successfully asserted, against online services. It is also possible that our users could make claims against us for losses incurred in reliance on information provided on our networks. In addition, we could be
exposed to liability in connection with material posted to our Internet sites by third parties. For example, many of our sites offer users an opportunity to post comments and opinions that are not moderated. Some of this user-generated content may
infringe on third-party intellectual property rights or privacy rights or may otherwise be subject to challenge under copyright laws. Such claims, whether brought in the United States or abroad, could divert management time and attention away from
our business and result in significant cost to investigate and defend, regardless of the merit of these claims. In addition, if we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial
damages. Our insurance may not adequately protect us against these claims. The filing of these claims may also damage our reputation as a high quality provider of unbiased, timely analysis and result in client cancellations or overall decreased
demand for our services.
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We may be liable if third parties or our employees misappropriate our users confidential business
information.
We currently retain confidential information relating to our users in secure database servers. Although we observe
security measures throughout our operations, we cannot assure you that we will be able to prevent individuals from gaining unauthorized access to these database servers. Any unauthorized access to our servers, or abuse by our employees, could result
in the theft of confidential user information. If confidential information is compromised, we could lose customers or become subject to liability or litigation and our reputation could be harmed, any of which could materially and adversely affect
our business and results of operations.
Our business, which is dependent on centrally located communications and computer hardware systems, is
vulnerable to natural disasters, telecommunication and systems failures, terrorism and other problems, which could reduce traffic on our networks or websites and result in decreased capacity for advertising space.
Our operations are dependent on our communications systems and computer hardware, all of which are located in data centers operated by third
parties. These systems could be damaged by fire, floods, earthquakes, power loss, telecommunication failures and similar events. Our insurance policies have limited coverage levels for loss or damages in these events and may not adequately
compensate us for any losses that may occur. In addition, terrorist acts or acts of war may cause harm to our employees or damage our facilities, our clients, our clients customers and vendors, or cause us to postpone or cancel, or result in
dramatically reduced attendance at, our events, which could adversely impact our revenues, costs and expenses and financial position. We are predominantly uninsured for losses and interruptions to our systems or cancellations of events caused by
terrorist acts and acts of war.
Our systems may be subject to slower response times and system disruptions that could adversely affect
our revenues.
Our ability to attract and maintain relationships with users, advertisers and strategic partners depends on the
satisfactory performance, reliability and availability of our Internet infrastructure. Our Internet advertising revenues relate directly to the number of advertisements and other marketing opportunities delivered to our users. System interruptions
or delays that result in the unavailability of Internet sites or slower response times for users would reduce the number of advertising impressions and leads delivered. This could reduce our revenues as the attractiveness of our sites to users and
advertisers decreases. Our insurance policies provide only limited coverage for service interruptions and may not adequately compensate us for any losses that may occur due to any failures or interruptions in our systems. Further, we do not have
multiple site capacity for all of our services in the event of any such occurrence.
We may experience service disruptions for the
following reasons:
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occasional scheduled maintenance;
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volume of visits to our websites that exceed our infrastructures capacity; and
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natural disasters, telecommunications failures, power failures, other system failures, maintenance, viruses, hacking or other events outside of our control.
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In addition, our networks and websites must accommodate a high volume of traffic and deliver frequently updated information. They have
experienced in the past, and may experience in the future, slower response times or decreased traffic for a variety of reasons. There have been instances where our online networks as a whole, or our websites individually, have been inaccessible.
Also, slower response times, which have occurred more frequently, can result from general Internet problems, routing and equipment problems involving third-party Internet access providers, problems with third-party advertising servers, increased
traffic to our servers, viruses and other security breaches, many of which problems are out of our control. In addition, our users depend on Internet service providers and online service providers for access to our online networks or websites. Those
providers have experienced outages and delays in the past, and may experience outages or delays in the future. Moreover, our Internet infrastructure might not be able to support continued growth of our online networks or websites. Any of these
problems could result in less traffic to our networks or websites or harm the perception of our networks or websites as reliable sources of information. Less traffic on our networks and websites or periodic interruptions in service could have the
effect of reducing demand for advertising on our networks or websites, thereby reducing our advertising revenues.
Our networks may be vulnerable to
unauthorized persons accessing our systems, viruses and other disruptions, which could result in the theft of our proprietary information and/or disrupt our Internet operations making our websites less attractive and reliable for our users and
advertisers.
Internet usage could decline if any well-publicized compromise of security occurs. Hacking involves
efforts to gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Hackers, if successful, could misappropriate proprietary information or
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cause disruptions in our service. We may be required to expend capital and other resources to protect our websites against hackers. Our online networks could also be affected by computer viruses
or other similar disruptive problems, and we could inadvertently transmit viruses across our networks to our users or other third parties. Any of these occurrences could harm our business or give rise to a cause of action against us. Providing
unimpeded access to our online networks is critical to servicing our customers and providing superior customer service. Our inability to provide continuous access to our online networks could cause some of our customers to discontinue purchasing
advertising programs and services and/or prevent or deter our users from accessing our networks. Our activities and the activities of third-party contractors involve the storage and transmission of proprietary and personal information. Accordingly,
security breaches could expose us to a risk of loss or litigation and possible liability. We cannot assure that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will
accept such contractual provisions as part of our agreements.
If we do not maintain proper and effective disclosure controls and procedures and
internal controls over financial reporting, our ability to produce accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and investors views of us.
Ensuring that we have adequate disclosure controls and procedures, including internal financial and accounting controls and procedures, in
place to help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. On an ongoing basis, both we and our independent auditors document and test our
internal controls and procedures in connection with the requirements of Section 404 of the Sarbanes-Oxley Act and, as part of that documentation and testing, identify areas for further attention and improvement. Implementing any appropriate
changes to our internal controls may entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and distract our officers, directors and employees from the operation of our business.
These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our
operating costs and could materially impair our ability to operate our business. In addition, investors perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements may seriously affect
our stock price.
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to expand our
sales and marketing and service development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of
our sales and marketing and research and development efforts or take advantage of acquisition or other opportunities, which could seriously harm our business and operating results. If we incur debt, the debt holders would have rights senior to
common stockholders to make claims on our assets and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience
dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict
or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
The impairment of a significant amount of goodwill and intangible assets on our balance sheet could result in a decrease in earnings and, as a result,
our stock price could decline.
In the course of our operating history, we have acquired assets and businesses. Some of our
acquisitions have resulted in the recording of a significant amount of goodwill and/or intangible assets on our financial statements. We had approximately $94.1 million of goodwill and $4.1 million of net intangible assets as of June 30,
2014. The goodwill and/or intangible assets were recorded because the fair value of the net tangible assets acquired was less than the purchase price. We may not realize the full value of the goodwill and/or intangible assets. As such, we evaluate
goodwill and other intangible assets with indefinite useful lives for impairment on an annual basis or more frequently if events or circumstances suggest that the asset may be impaired. We did not have any intangible assets with indefinite lives as
of June 30, 2014 or December 31, 2013. We evaluate other intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. If goodwill or other
intangible assets are determined to be impaired, we will write off the unrecoverable portion as a charge to our earnings. If we acquire new assets and businesses in the future, as we intend to do, we may record additional goodwill and/or intangible
assets. The possible write-off of the goodwill and/or intangible assets could negatively impact our future earnings and, as a result, the market price of our common stock could decline.
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The trading value of our common stock may be volatile and decline substantially.
The trading price of our common stock may be volatile and could be subject to wide fluctuations in response to various factors, some of which
are beyond our control. In addition to the factors discussed in this Risk Factors section and elsewhere in this Annual Report, these factors include:
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our operating performance and the operating performance of similar companies;
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the overall performance of the equity markets;
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announcements by us or our competitors of acquisitions, business plans, commercial relationships or new product or service offerings;
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threatened or actual litigation;
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changes in laws or regulations relating to the provision of Internet content;
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any change in our board of directors or management;
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publication of research reports about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;
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our sale of common stock or other securities in the future;
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large volumes of sales of our shares of common stock by existing stockholders; and
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general political and economic conditions.
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In addition, the stock market in general, and
historically the market for
Internet-related
companies in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those
companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a companys securities. This litigation, if instituted against us, could
result in substantial costs, divert our managements attention and resources and harm our business, operating results and financial condition.
Provisions of our certificate of incorporation, bylaws and Delaware law could deter takeover attempts.
Various provisions in our certificate of incorporation and bylaws could delay, prevent or make more difficult a merger, tender offer, proxy
contest or change of control. Our stockholders might view any transaction of this type as being in their best interest since the transaction could result in a higher stock price than the then-current market price for our common stock. Among other
things, our certificate of incorporation and bylaws:
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authorize our board of directors to issue preferred stock with the terms of each series to be fixed by our board of directors, which could be used to institute a poison pill that would work to dilute the
share ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board;
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divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year;
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permit directors to be removed only for cause;
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prohibit action by written consent of our stockholders; and
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specify advance notice requirements for stockholder proposals and director nominations. In addition, with some exceptions, the Delaware General Corporation Law restricts or delays mergers and other business combinations
between us and any stockholder that acquires 15% or more of our voting stock.
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Future sales of shares of our common stock by existing
stockholders could depress the market price of our common stock.
If our existing stockholders sell, or indicate an intent to sell,
substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly. A large portion of our outstanding shares of common stock is held by our officers, directors and significant
stockholders. Two of the largest percentages of our shares are owned by venture capital funds, which are typically structured to have a finite life. As these venture capital funds approach or pass the respective terms of the fund, the decision to
sell or hold our stock may be based not only on the underlying investment merits of our stock but also on the requirements of their internal fund structure. Our directors, executive officers and significant stockholders beneficially own
approximately 13.6 million shares of our common stock, which represents 41% of our shares outstanding as of June 30, 2014. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading
price of our common stock could decline substantially.
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A limited number of stockholders will have the ability to influence the outcome of director elections and
other matters requiring stockholder approval.
Our directors, executive officers and significant stockholders beneficially own
approximately 41% of our outstanding common stock. These stockholders, if they act together, could exert substantial influence over matters requiring approval by our stockholders, including the election of directors, the amendment of our certificate
of incorporation and bylaws and the approval of mergers or other business combination transactions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an
opportunity to receive a premium for their stock as part of a sale of our company and might reduce our stock price. These actions may be taken even if they are opposed by other stockholders.