Risks Relating to Our Business
Our
present and intended business operations are highly speculative and
involve substantial risks. Only investors who can bear the risk of
losing their entire investment should consider buying our shares.
Among the risk factors that you should consider are the
following:
The Company may pursue acquisitions, investments or other strategic
relationships or alliances, which may consume significant
resources, may be unsuccessful and could dilute holders of its
common stock.
Acquisitions,
investments and other strategic relationships and alliances, if
pursued, may involve significant cash expenditures, debt
incurrence, operating losses, and expenses that could have a
material adverse effect on the Company’s financial condition
and operating results. Acquisitions involve numerous other risks,
including:
●
Diversion of
management time and attention from daily operations;
●
Difficulties
integrating acquired businesses, technologies, and personnel into
the Company;
●
Inability to obtain
required regulatory approvals and/or required financing on
favorable terms;
●
Entry into new
markets in which the Company has little previous
experience;
●
Potential loss of
key employees, key contractual relationships, or key customers of
acquired companies or of the Company; and
●
Assumption of the
liabilities and exposure to unforeseen liabilities of acquired
companies.
●
Potential dilution
to existing shareholders
If
these types of transactions are pursued, it may be difficult for
the Company to complete these transactions quickly and to integrate
these acquired operations efficiently into its current business
operations. Any acquisitions, investments or other strategic
relationships and alliances by the Company may ultimately harm our
business and financial condition. In addition, future acquisitions
may not be as successful as originally anticipated and may result
in impairment charges.
The Company’s products and services compete in segments of
the internet service industry that are highly
competitive.
The
principal competitive factors that affect the Company include
technical innovation, marketing products and services, podcast
monetization, managing costs to maintain competitive pricing,
delivering superior customer service, and aggressively managing
costs. Some competitors are significantly larger than we
are and offer services for free. We cannot assure you that we will
be able to successfully compete against current and future
competitors and grow and maintain our market share.
We may be required to record a significant charge to earnings as we
are required to re-assess our goodwill and other intangible
assets.
We are
required under U.S. GAAP to review our intangible assets, including
goodwill for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is
required to be tested for impairment annually or more frequently if
facts and circumstances warrant a review. Factors that may be
considered a change in circumstances indicating that the carrying
value of our intangible assets may not be recoverable include a
decline in stock price and market capitalization and slower or
declining growth rates in our industry. We may be required to
record a significant charge to earnings in our financial statements
during the period in which any impairment of our goodwill or
amortizable intangible assets is determined.
We face a higher risk of failure because of the competitiveness of
companies in the internet, technology, domain, hosting and podcast
industries.
We face
the difficulties frequently encountered by internet, technology,
and media companies in new and evolving markets. These potential
difficulties include the following:
● substantial
delays and expenses related to testing and developing of our new
products;
● successfully
establishing podcasting as a large-scale advertising
medium;
● marketing
and distribution problems with new and existing products and
technologies;
●
we rely on the internet, third-party providers, marketplaces and
social media platforms who control distribution of
information;
● competition
from larger and more established companies that are better
capitalized;
● problems
or delays in reaching our marketing goals;
● difficulty
in recruiting qualified employees for management and other
positions;
● our
lack of sufficient customers, revenue, and cash flow;
and
● our
limited financial resources.
We may
continue to face these and other difficulties in the future. Some
of these problems may be beyond our control. If we are unable to
successfully address them, our business will suffer.
We face significant competition for our products in the domain name
registration and web-hosting markets and other markets in which we
compete, which we expect will continue to intensify, and we may not
be able to maintain or improve our competitive position or market
share.
We
provide Internet hosting solutions enabling individuals, businesses
and organizations to establish an online presence, connect with
consumers and manage their ventures. The market for these solutions
is highly fragmented and competitive. These solutions are also
rapidly evolving, creating opportunity for new competitors to enter
the market with or address specific segments of the market. Our
competitors include providers of domain registration services,
web-hosting solutions, website creation and management solutions,
e-commerce enablement providers, cloud computing service and online
security providers, and providers of productivity tools such as
business-class email. Many of these competitors are larger and
better capitalized than our company.
We
expect competition to increase in the future from competitors in
the domain and hosting markets. Some of our current and potential
competitors have greater resources, more brand recognition and
consumer awareness, more diversified product offerings, greater
international scope and larger customer bases than we do, and we
may therefore not be able to effectively compete with them. In
particular, the extension of the Cooperative Agreement between
Verisign Inc. (Verisign), the registry for .com and .net, and the
U.S. Department of Commerce in 2018 gave Verisign the right to
become a registrar for any gTLD other than .com. If Verisign
decides to become a registrar, it will become one of our
competitors, which could have a negative impact on our business and
the industry. In addition, we face competition in the website and
e-commerce site building market from competitors. Our competitors
have greater resources, more brand recognition and consumer
awareness, more diversified product offerings, greater
international scope and larger customer bases than we do, and we
may therefore not be able to effectively compete with them. In
addition, some of our competitors offer their services and products
at low or no cost. If these competitors and potential competitors
decide to devote greater resources to the development, promotion
and sale of products in the markets in which we compete, or if the
products offered by these companies are more attractive to or
better meet the evolving needs of our customers, our market share,
growth prospects and operating results may be adversely
affected.
In
addition, in an attempt to gain market share, competitors may offer
aggressive price discounts or alternative pricing models on the
products they offer, such as so-called "freemium" pricing in which
a basic offering is provided for free with advanced features
provided for a fee, or increase commissions paid to their referral
sources. As a result, increased competition could result in lower
sales, price reductions, reduced margins and the loss of market
share.
Furthermore,
conditions in our market could change rapidly and significantly as
a result of technological advancements, partnering by our
competitors or continuing market consolidation. Innovative new
start-up companies and large competitors making significant
investments in technology and development may invent similar or
superior products and technologies competing with our products and
technology. Our current and potential competitors may also
establish cooperative relationships among themselves or with third
parties that may further enhance their ability to compete. The
continued entry of competitors into the domain name registration
and web-hosting markets, and the rapid growth of some competitors
that have already entered each market, may make it difficult for us
to maintain our market position. Our ability to compete will depend
upon our ability to provide a better product than our competitors
at a competitive price. To remain competitive, we may be required
to make substantial additional investments in research,
development, marketing and sales in order to respond to
competition, and there can be no assurance that these investments
will achieve any returns for us or that we will be able to compete
successfully in the future.
We rely on search engines to attract a meaningful portion of our
customers. If search engines change their search algorithms or
policies regarding advertising, increase their pricing or suffer
problems, our ability to attract new customers may be
impaired.
Many of
our customers locate our website and products through Internet
search engines such as Google, Yahoo! and Bing. The prominence of
our website in response to search inquiries is a critical factor in
attracting potential customers to our websites. Search engines
revise their algorithms from time to time in an attempt to optimize
their search results. If search engines on which we rely for
algorithmic listings modify their algorithms, our websites may
appear less prominently or not at all in search results, which
could result in reduced traffic to our websites that we may not be
able to replace. Additionally, if the costs of search engine
marketing services, such as Google AdWords, increase, we may incur
additional marketing expenses or be required to allocate a larger
portion of our marketing spend to this channel and our business and
operating results could be adversely affected.
Furthermore,
competitors may in the future bid on our brand names and other
search terms we use to drive traffic to our websites. Such actions
could increase our advertising costs and result in decreased
traffic to our websites. In addition, search engines or social
networking sites may change their advertising policies from time to
time. Moreover, the use of voice recognition technology such as
Alexa, Google Assistant, Cortana or Siri may drive traffic away
from search engines, potentially resulting in reduced traffic to
our website. If any change to these policies delays or prevents us
from advertising through these channels, it could result in reduced
traffic to our website and sales of our subscriptions.
We rely on online/digital marketing and lead generation to attract
new customers and provide upsell opportunities to our existing
customer base. Personal information protections and privacy laws
may reduce the effectiveness of marketing effort and our ability to
attract new customers may be impaired.
Many of
our customers locate us through the Internet and our website.
Online content, social media and opt-in marketing play a critical
role in attracting potential customers and selling add-ons to
existing customers. Privacy laws and protection of personal
information may adversely affect our ability to reach and nurture
leads for our products. Additionally, we may incur additional
marketing expenses or be required to allocate a larger portion of
our marketing budget to creating and optimizing new lead generation
channels and our business and operating results could be adversely
affected.
If the rate of growth of small and medium businesses is
significantly lower than our estimates or if demand for our
products does not meet expectations, our ability to generate
revenue and meet our financial targets could be adversely
affected.
Although
we expect continued demand from small and medium businesses for our
products, it is possible the rate of growth may not meet our
expectations, or the market may not grow, either of which would
adversely affect our business. Our expectations for future revenue
growth are based in part on assumptions reflecting our industry
knowledge and experience serving small and medium businesses, as
well as our assumptions regarding demographic shifts, growth in the
availability and capacity of Internet infrastructure and the
general economic climate. If any of these assumptions proves to be
inaccurate, our revenue growth could be significantly lower than
expected. Our ability to compete successfully depends on our
ability to offer an integrated and comprehensive suite of products
enabling our diverse base of customers to start, grow and run their
businesses. The success of our domains, hosting, and business
applications offerings is predicated on the assumption that an
online presence is, and will continue to be, an important factor in
our customers' abilities to establish, expand and manage their
businesses quickly, easily and affordably. If we are incorrect in
this assumption, for example due to the introduction of a new
technology or industry standard superseding the importance of an
online presence or renders our existing or future products
obsolete, then our ability to retain existing customers and attract
new customers could be adversely affected, which could harm our
ability to generate revenue and meet our financial
targets.
We may not be able to maintain and enhance our brands.
Management
believes that the Libsyn and Pair brands have significantly
contributed to the growth of the business. They are critical to
expanding our product and service offerings. These brands are a key
component in marketing products and services and attracting new
customers. Maintaining and enhancing our brands depends largely on
our ability to provide useful and reliable products and services,
which we may not do successfully. Additionally, if we fail to
provide superior customer service our brands may be adversely
impacted. If events occur that damage our reputation and brands, we
may not be able to compete.
If we do not respond effectively to technological change, our
products and services could become obsolete.
The
development of our products and services and other technology
entails significant technical and business risks. To remain
competitive, we must continue to improve our products'
responsiveness, functionality, and features.
High
technology industries are characterized by:
● rapid
technological change;
● changes
in user and customer requirements and preferences;
● frequent
new product and services introductions embodying new technologies;
and
● the
emergence of new industry standards and practices.
The
evolving nature of the Internet and the podcasting and hosting
industries could render our existing technology and systems
obsolete. Our success will depend, in part, on our ability
to:
●
license or acquire
leading technologies useful in our business;
●
develop new
services and technologies that address our users' increasingly
sophisticated and varied needs; and,
●
respond to
technological advances and emerging industry and regulatory
standards and practices in a cost-effective and timely
way.
Future
advances in technology may not be beneficial to, or compatible
with, our business. Furthermore, we may not use new technologies
effectively or adapt our technology and systems to user
requirements or emerging industry standards in a timely way. To
stay technologically competitive, we may have to spend large
amounts of money and time. If we do not adapt to changing market
conditions or user requirements in a timely way, our business,
financial condition, and results of operations could be seriously
harmed.
If we fail to develop new products, or if we incur unexpected
expenses or delays in product development, we may lose our
competitive position.
Although
we currently have fully developed products available for sale, we
are also developing various products and technologies that we will
rely on to remain competitive. These new products and technologies
are related to our operations, are ongoing and in various stages of
their product lifecycle. New products and features are continuously
developed to address customer and market requirements. Technology
changes and advances are also constantly implemented to reduce
costs, increase reliability, and improve our products. Due to the
risks in developing new products and technologies, limited
financing, competition, obsolescence, loss of key personnel and
other factors, we may fail to develop these technologies and
products, or we may experience lengthy and costly delays in doing
so.
Changes to podcast, app and social media platform policies and
processes could have an adverse effect on the business plans of
Libsyn, including revenues.
Podcasts
and Podcast Apps are available in the most popular online platforms
and directories. Podcasts are available on the most popular music
streaming platforms and directories such as Spotify, Pandora, and
Deezer. Podcasts are included in dedicated podcast directories such
as Apple Podcasts, Google Podcasts and Overcast.. Many Podcast Apps
are available in Apple, Amazon, and Google Play App Stores.
Additionally, customers use Libsyn to distribute podcasts on social
media platforms (Facebook, Twitter, YouTube). We rely on these
third parties and must adhere to their rules for inclusion, which
in some cases requires their approval for submission. Changes to
these policies and requirements may prevent us from distributing
podcasts on these platforms in the future.
Distribution,
which cannot be guaranteed, depends on third-party review
personnel, their management and the specific platform and company
policies which are subject to change at any time. Changes in policy
and rejection of Podcasts or Podcast Apps by any one or all the
online platforms could have an adverse impact on future business
plans of Libsyn, including revenue.
Additionally,
these same policies may adversely affect monetization strategies.
These platforms may seek to limit our ability to generate revenue
from advertising, premium content, or the sale of apps. Our
business, financial condition and results of operations could be
seriously harmed as a result.
System and online security failures could harm our business and
operating results.
The
operation of our business depends on the efficient and
uninterrupted operation of our computer and communications hardware
systems. Our systems and operations are vulnerable to damage or
interruption from many sources, including fire, flood, power loss,
telecommunications failure, break-ins, earthquakes, and similar
events. Our servers are also vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. Any
substantial interruptions in the future could result in the loss of
data and could destroy our ability to generate revenues from
operations.
The
secure transmission of confidential information over public
networks is a significant barrier to electronic commerce and
communications. Anyone who can circumvent our security measures
could misappropriate confidential information or cause
interruptions in our operations. We may have to spend large amounts
of money and other resources to protect against potential security
breaches or to alleviate problems caused by any
breach.
A
network attack, a security breach or other data security incident
could delay or interrupt service to our customers, harm our
reputation or subject us to significant liability. Our operations
depend on our ability to protect our network and systems against
interruption or damage from unauthorized entry, computer viruses,
denial of service attacks and other security threats beyond our
control. We may be subject to distributed denial of service (DDOS)
attacks by hackers aimed at disrupting service to our customers and
attempts to place illegal or abusive content on our or our
customers' websites. Our response to such DDOS attacks may be
insufficient to protect our network and systems. In addition, there
has been a continuing increase in the number of malicious software
attacks in the technology industry, including malware and
ransomware. In addition, from time to time, activities of our
customers or other parties may cause us to suspend or terminate
customer accounts. We have suspended and terminated, and will in
the future suspend or terminate, a customer's use of our products
when their activities breach our terms of service, interfere with
or harm other customers' information or use of our service or
otherwise violate applicable law. We may also suspend or terminate
a customer's account if it is repeatedly targeted by DDOS or other
attacks disrupting other customers or otherwise impacts our
infrastructure. We cannot guarantee our backup systems, regular
data backups, security protocols, network protection mechanisms and
other procedures currently in place, or that may be in place in the
future, will be adequate to prevent or remedy network and service
interruption, system failure, damage to one or more of our systems,
data loss, security breaches or other data security incidents.
Also, some of our products may be cloud-based, and the amount of
data we store for our customers on our servers has been increasing
as our business has grown. Despite the implementation of security
measures, our infrastructure may be vulnerable to computer viruses,
worms, other malicious software programs, illegal or abusive
content or similar disruptive problems caused by our customers,
employees, consultants or other Internet users who attempt to
invade or disrupt public and private data networks or to improperly
access, use or obtain data. Any actual or perceived breach of our
security, or any other data security incident, could damage our
reputation and brand, expose us to a risk of loss or litigation and
possible liability, subject us to regulatory or other government
inquiries or investigations, require us to expend significant
capital and other resources to alleviate problems caused by the
breach, and deter customers from using our products, any of which
would harm our business, financial condition and operating
results.
If the security of the confidential information or personally
identifiable information we maintain, including that of our
customers and the visitors to our customers' websites stored in our
systems, is breached or otherwise subjected to unauthorized access,
our reputation may be harmed, and we may be exposed to
liability.
Our
business involves the storage and transmission of confidential
information, including personally identifiable information. In
addition, all of our products are cloud-based, the amount of data
we store for our customers on our servers (including personally
identifiable information and other potentially sensitive
information) has been increasing. We take measures intended to
protect the security, integrity and confidentiality of the personal
information and other sensitive information, including payment card
information, we collect, store or transmit, but cannot guarantee
that inadvertent or unauthorized use or disclosure will not occur
or that third parties will not gain unauthorized access to this
information despite our efforts. If third parties succeed in
penetrating our security measures or those of our vendors and
partners, or in otherwise accessing or obtaining without
authorization the payment card information or other sensitive or
confidential information we or our vendors and partners maintain,
we could be subject to liability, loss of business, litigation,
government investigations or other losses. Hackers or individuals
who attempt to breach our security measures or those of our vendors
and partners could, if successful, cause the unauthorized
disclosure, misuse, or loss of personally identifiable information
or other confidential information, including payment card
information, suspend our web-hosting operations or cause
malfunctions or interruptions in our networks.
If we
or our partners experience any breaches of our security measures or
sabotage, or otherwise suffer unauthorized use or disclosure of, or
access to, personally identifiable information or other
confidential information, including payment card information, we
might be required to expend significant capital and resources to
protect against or address these problems. We may not be able to
remedy any problems caused by hackers or other similar actors in a
timely manner, or at all. Because techniques used to obtain
unauthorized access or to sabotage systems change frequently and
generally are not recognized until after they are launched against
a target, we and our vendors and partners may be unable to
anticipate these techniques or to implement adequate preventative
measures. Advances in computer capabilities, discoveries of new
weaknesses and other developments with software generally used by
the Internet community also increase the risk we, or our customers
using our servers, will suffer a security breach. Our partners and
we may also suffer security breaches or unauthorized access to
personally identifiable information and other confidential
information, including payment card information, due to employee
error, rogue employee activity, unauthorized access by third
parties acting with malicious intent or who commit an inadvertent
mistake or social engineering. If a breach of our security or other
data security incident occurs or is perceived to have occurred, the
perception of the effectiveness of our security measures and our
reputation could be harmed and we could lose current and potential
customers.
Security
breaches or other unauthorized access to personally identifiable
information and other confidential information, including payment
card information, could result in claims against us for
unauthorized purchases with payment card information, identity
theft or other similar fraud claims as well as for other misuses of
personally identifiable information, including for unauthorized
marketing purposes, which could result in a material adverse effect
on our business or financial condition. Moreover, these claims
could cause us to incur penalties from payment card associations
(including those resulting from our failure to adhere to industry
data security standards), termination by payment card associations
of our ability to accept credit or debit card payments, litigation
and adverse publicity, and regulatory or other government inquiries
or investigations, any of which could have a material adverse
effect on our business and financial condition. Although we
maintain cyber liability insurance coverage that may cover certain
liabilities in connection with a security breach or other security
incident, we cannot be certain our insurance coverage will be
adequate for liabilities actually incurred, that insurance will
continue to be available to us on commercially reasonable terms, or
at all, or that any insurer will not deny coverage as to any future
claim. The successful assertion of one or more large claims against
us that exceed available insurance coverage, or the occurrence of
changes in our insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements,
could have a material adverse effect on our business, including our
financial condition, results of operations and
reputation.
We
expect to continue to expend significant resources to protect
against security breaches and other data security incidents. The
risk that these types of events could seriously harm our business
is likely to increase as we expand the number of cloud-based
products we offer and operate in more countries.
Privacy concerns relating to our technology could damage our
reputation and deter existing and new customers from using our
products.
Concerns
about our practices with regard to the collection, use, disclosure
or security of personally identifiable information, including
payment card information, or other privacy related matters, even if
unfounded, could damage our reputation and adversely affect our
operating results. In addition, as nearly all of our products are
cloud-based, the amount of data we store for our customers on our
servers (including personally identifiable information) has been
increasing. Any systems failure or compromise of our security
resulting in the release of our users' or customers' data could
seriously limit the adoption of our product offerings, as well as
harm our reputation and brand and, therefore, our business. We
expect to continue to expend significant resources to protect
against security breaches. The risk that these types of events
could seriously harm our business is likely to increase as we
expand the number of cloud-based products we offer.
We are subject to privacy and data protection laws and regulations
as well as contractual privacy and data protection obligations. Our
failure to comply with these or any future laws, regulations or
obligations could subject us to sanctions and damages and could
harm our reputation and business.
We are
subject to a variety of laws and regulations, including regulation
by various federal government agencies, including the Federal Trade
Commission (FTC), Federal Communications Commission (FCC), and
state and local agencies. We may collect personally identifiable
information, including payment card information, and other data
from our current and prospective customers, website users and
employees. The U.S. federal and various state and foreign
governments have adopted or proposed limitations on, or
requirements regarding, the collection, distribution, use, security
and storage of personally identifiable information of individuals,
including payment card information, and the FTC and many state
attorneys general are applying federal and state consumer
protection laws to impose standards on the online collection, use
and dissemination of data. Self-regulatory obligations, other
industry standards, policies, and other legal obligations may apply
to our collection, distribution, use, security or storage of
personally identifiable information or other data relating to
individuals, including payment card information. These obligations
may be interpreted and applied in an inconsistent manner from one
jurisdiction to another and may conflict with one another, other
regulatory requirements or our internal practices. Any failure or
perceived failure by us to comply with U.S., E.U. or other foreign
privacy or security laws, policies, industry standards or legal
obligations or any security incident resulting in the unauthorized
access to, or acquisition, release or transfer of, personally
identifiable information or other data relating to our customers,
employees and others, including payment card information, may
result in governmental enforcement actions, litigation, fines and
penalties or adverse publicity and could cause our customers to
lose trust in us, which could have an adverse effect on our
reputation and business.
We
expect there will continue to be new proposed laws, regulations and
industry standards concerning privacy, data protection and
information security in the U.S., the European Union and other
jurisdictions. We cannot yet determine the impact such future laws,
regulations and standards may have on our business. Future laws,
regulations, standards and other obligations could impair our
ability to collect or use information we utilize to provide
advertising services, thereby impairing our ability to maintain and
grow our total customers and increase revenue. Future restrictions
on the collection, use, sharing or disclosure of our users' data or
additional requirements for express or implied consent of users for
the use and disclosure of such information could require us to
modify our products, possibly in a material manner, and could limit
our ability to develop new products and features.
In
particular, with regard to transfers to the U.S. of personal data
(as such term is used in the 1995 European Union Data Protection
Directive and applicable E.U. member state legislation, and as
similarly defined under the General Data Protection Regulation
(GDPR) and the proposed ePrivacy Regulation) from our employees and
European customers and users, we rely upon the U.S.-E.U. Privacy
Shield, as well as E.U. Model Clauses in certain circumstances.
Both the U.S.-E.U. Privacy Shield and E.U. Model Clauses have been
subject to legal challenge and may be modified or invalidated, and
we may be unsuccessful in maintaining legitimate means for our
transfer and receipt of personal data from the European Economic
Area (EEA). We may experience reluctance or refusal by current or
prospective European customers to use our products, and we may find
it necessary or desirable to make further changes to our handling
of personal data of EEA residents. The regulatory environment
applicable to the handling of EEA residents' personal data, and our
actions taken in response, may cause us to assume additional
liabilities or incur additional costs, and could result in our
business, operating results and financial condition being harmed.
Additionally, we and our customers may face a risk of enforcement
actions by data protection authorities in the EEA relating to
personal data transfers to us and by us from the EEA. Any such
enforcement actions could result in substantial costs and diversion
of resources, distract management and technical personnel and
negatively affect our business, operating results and financial
condition.
In
addition, several foreign countries and governmental bodies,
including the E.U., Brazil and Canada, have laws and regulations
concerning the collection and use of personally identifiable
information obtained from their residents, including payment card
information, which are often more restrictive than those in the
U.S. Laws and regulations in these jurisdictions apply broadly to
the collection, use, storage, disclosure and security of personally
identifiable information, including payment card information
identifying, or which may be used to identify, an individual, such
as names, email addresses and, in some jurisdictions, Internet
Protocol (IP) addresses, device identifiers and other data.
Although we are working to comply with those laws and regulations
applicable to us, these and other obligations may be modified and
interpreted in different ways by courts, and new laws and
regulations may be enacted in the future. Within the EEA, the GDPR
took full effect on May 25, 2018, superseding the 1995 European
Union Data Protection Directive and becoming directly applicable
across E.U. member states. The GDPR includes more stringent
operational requirements for processors and controllers of personal
data, for companies established in the EEA and those outside the
EEA that collect and use personal data, including payment card
information, imposes significant penalties for non-compliance and
has broader extra-territorial effect. As the GDPR is a regulation
rather than a directive, it applies throughout the EEA, but permits
member states to enact supplemental requirements if they so choose.
Noncompliance with the GDPR can trigger fines of up to the greater
of €20 million or 4% of global annual revenues. Further,
following a referendum in June 2016 in which voters in the U.K.
approved an exit from the E.U. by April 2019, a Data Protection Act
substantially implementing the GDPR was enacted in the U.K.,
effective in May 2018. It remains unclear, however, if the U.K.'s
withdrawal from the E.U. will ultimately transpire and, if it does,
how U.K. data protection laws or regulations will develop in the
medium to longer term and how data transfers to and from the U.K.
will be regulated. In addition, some countries are considering or
have enacted legislation requiring local storage and processing of
data that could increase the cost and complexity of delivering our
services.
Following
the GDPR, a number of states in the U.S. have introduced bills,
which, if passed, would impose operational requirements on U.S.
companies similar to the requirements reflected in the GDPR. Last
year, the State of California passed a privacy law (the
“CCPA”), which gives consumers significant rights over
the use of their personal information, including the right to
object to the “sale” of their personal information.
These rights may restrict our ability to use personal information
in connection with our business operations. The CCPA also provides
a private right of action for security breaches. Washington and
Massachusetts have introduced significant privacy bills and
Congress is debating federal privacy legislation, which if passed,
may restrict our business operations and require us to incur
additional costs for compliance.
Any new
laws, regulations, other legal obligations or industry standards,
or any changed interpretation of existing laws, regulations or
other standards may require us to incur additional costs and
restrict our business operations. For example, many jurisdictions
have enacted laws requiring companies to notify individuals of data
security breaches involving certain types of personal data. These
mandatory disclosures regarding a security breach or the disclosure
of an informant action could result in negative publicity to us,
which may cause our customers to lose confidence in the
effectiveness of our data security measures which could impact our
operating results. In addition, we are required under the GDPR to
respond to customers' SARs within a certain time period, which
entails determining what personal data is being processed, the
purpose of any such data processing, to whom such personal data has
been disclosed and whether personal data is being disclosed for the
purpose of making automated decisions relating to that customer. We
may dedicate significant resources to responding to our customers'
SARs, which could have a negative impact on our operating results.
In addition, a failure to respond to SARs properly could result in
fines, negative publicity and damage to our business.
If our
privacy or data security measures fail to comply with current or
future laws, regulations, policies, legal obligations or industry
standards, or are perceived to have done so, we may be subject to
litigation, regulatory investigations, fines or other liabilities,
as well as negative publicity and a potential loss of business.
Moreover, if future laws, regulations, other legal obligations or
industry standards, or any changed interpretations of the
foregoing, limit our customers' ability to use and share personally
identifiable information, including payment card information, or
our ability to store, process and share such personally
identifiable information or other data, demand for our products
could decrease, our costs could increase, and our business,
operating results and financial condition could be
harmed.
We face business disruption and related risks resulting from the
recent outbreak of the novel coronavirus 2019 (COVID-19), which
could have a material adverse effect on our business and results of
operations.
Our
operations and business could be disrupted and materially adversely
affected by the recent outbreak of COVID-19. The spread of COVID-19
from China to other countries has resulted in the World Health
Organization declaring the outbreak of COVID-19 as a
“pandemic,” or a worldwide spread of a new disease, on
March 11, 2020. Many countries around the world have imposed
quarantines and restrictions on travel and mass gatherings to slow
the spread of the virus. With respect to global financial markets,
the continuing and significant decline in the Dow Industrial
Average from the end of February through March 2020 has been
largely attributed to the effects of COVID-19. We are still
assessing our business operations and system supports and the
impact COVID-19 may have on our results and financial condition,
including requirements that we arrange for employees to work
remotely, but there can be no assurance that this analysis will
enable us to avoid part or all of any impact from the spread of
COVID-19 or its consequences, including downturns in business
sentiment generally or in our sector in particular.
If we are unable to attract and retain customers and increase sales
to new and existing customers, our business and operating results
would be harmed.
Our
success depends on our ability to attract and retain customers and
increase sales to new and existing customers. We derive a
substantial portion of our revenue from recurring hosting
subscriptions, domains and add-on services. The rate at which new
and existing customers purchase and renew subscriptions to our
products depends on a number of factors, including those outside of
our control. Although our total customers and revenue have grown
rapidly in the past, we cannot be assured that we will achieve
similar growth rates in future periods. In future periods, our
total customers and revenue could decline or grow more slowly than
we expect. Our sales could fluctuate or decline as a result of
lower demand for podcast or web hosting services, domain names, and
related products, declines in our customers' level of satisfaction
with our products and our customer support, the timeliness and
success of product enhancements and introductions by us and those
of our competitors, the pricing offered by us and our competitors,
the frequency and severity of any system outages, breaches and
technological change. Our revenue has grown historically due in
large part to customer growth and strong recurring hosting
subscriptions. Our future success depends in part on maintaining a
strong recurring subscription model. Any failure by us to continue
to attract new customers or maintain a strong recurring hosting
subscription model could have a material adverse effect on our
business, growth prospects and operating results. If we are unable
to increase sales of additional products to new and existing
customers, our growth prospects may be harmed.
If we do not successfully develop and market products that
anticipate or respond promptly to the needs of our customers, our
business and operating results may suffer.
The
markets in which we compete are characterized by constant change
and innovation, and we expect them to continue to evolve rapidly.
Our historical success has been based on our ability to identify
and anticipate customer needs and design products providing
individuals, small and medium businesses, and enterprises with the
tools they need to create, manage and augment their digital
identity. To the extent we are not able to continue to identify
challenges faced by our customers and provide products responding
in a timely and effective manner to their evolving needs, our
business, operating results and financial condition will be
adversely affected.
The
process of developing new technology is complex and uncertain. If
we fail to accurately predict customers' changing needs or emerging
technological trends, or if we fail to achieve the benefits
expected from our investments in technology, our business could be
harmed. We must continue to commit significant resources to develop
our technology in order to maintain our competitive position, and
these commitments will be made without knowing whether such
investments will result in products our customers will accept. Our
new products or product enhancements could fail to attain
meaningful customer acceptance for many reasons,
including:
●
delays in releasing
new products or product enhancements;
●
our failure to
accurately predict market demand or customer
preferences;
●
defects, errors or
failures in product design or performance;
●
negative publicity
about product performance or effectiveness;
●
introduction of
competing products (or the anticipation thereof) by other market
participants; poor business conditions for our customers or poor
general macroeconomic conditions;
●
the perceived value
of our products or product enhancements relative to their cost;
and
●
changing regulatory
requirements adversely affecting the products we
offer.
There
is no assurance we will successfully identify new opportunities,
develop and bring new products to market on a timely basis, or
products and technologies developed by others will not render our
products or technologies obsolete or noncompetitive, any of which
could adversely affect our business and operating results. If our
new products or enhancements do not achieve adequate acceptance by
our customers, or if our new products do not result in increased
sales or subscriptions, our competitive position will be impaired,
our anticipated revenue growth may not be achieved and the negative
impact on our operating results may be particularly acute because
of the upfront technology and development, marketing and
advertising and other expenses we may incur in connection with the
new product or enhancement.
We are exposed to the risk of system failures and capacity
constraints.
We may
experience, system failures and outages disrupting the operation of
our hosting services and web-based products. Our revenue depends in
large part on the access and delivery of traffic for podcasts and
websites. Accordingly, the performance, reliability and
availability of our servers for our operations and infrastructure,
as well as in the delivery of products to customers, are critical
to our reputation and our ability to attract and retain
customers.
We are
continually working to expand and enhance our hosting features,
technology and network infrastructure and other technologies to
accommodate substantial increases in the volume of traffic on our
network and our overall total customers. We may be unsuccessful in
these efforts, or we may be unable to project accurately the rate
or timing of these increases. In the future, we may be required to
allocate resources, including spending substantial amounts, to
build, purchase or lease data centers and equipment and upgrade our
technology and network infrastructure in order to handle increased
network or customer traffic. We cannot predict whether we will be
able to add network capacity from third-party suppliers or
otherwise as we require it. In addition, our network or our
suppliers' networks might be unable to achieve or maintain data
transmission capacity high enough to process orders or download
data effectively in a timely manner. Our failure, or our suppliers'
failure, to achieve or maintain high data transmission capacity
could significantly reduce consumer demand for our products. Such
reduced demand and resulting loss of traffic, cost increases, or
failure to accommodate new technologies could harm our business,
revenue and financial condition.
Our
systems, including those of our data centers and operations, are
also vulnerable to damage from fire, power loss, telecommunications
failures, computer viruses, physical and electronic break-ins and
similar events. The property and business interruption insurance
coverage we carry may not be adequate to compensate us fully for
losses that may occur.
Evolving technologies and resulting changes in customer behavior or
customer practices may impact the value of and demand for our
products.
Historically,
Internet users would typically navigate to a website by directly
typing its domain name into a web browser or navigation bar. The
domain name serves as a branded, unique identifier not unlike a
phone number or email address. People now use multiple methods in
addition to direct navigation to access websites. People
increasingly use search engines to find and access websites as an
alternative to typing a website address directly into a web browser
navigation bar. People are also using social networking and
microblogging sites more frequently to find and access websites.
Further, as people continue to access the Internet more frequently
through applications on mobile devices, domain names may become
less prominent and their value may decline. These evolving technologies and
changes in customer behavior may have an adverse effect on our
business and prospects.
The
domain name registration market continues to develop and adapt to
changing technology. This development may include changes in the
administration or operation of the Internet, including the creation
and institution of alternate systems for directing Internet traffic
without using the existing domain name registration system. The
widespread acceptance of any alternative system, such as mobile
applications or closed networks, could eliminate the need to
register a domain name to establish an online presence and could
materially and adversely affect our business. The shift in consumer
behavior to mobile devices, applications and social media platforms
may impact how consumers find information and make purchases. The
popularity of social media platforms has changed traditional
communication and online presence due to the number of landing
pages and ecommerce sites being hosted on Facebook and Etsy
potentially impacting the number of websites in the
future.
Audio
and Video sharing platforms, mobile applications and new technology
may decrease the demand for podcasts. Mobile consumption through
YouTube and Facebook Live for video and audio and future
technologies may impact podcast consumption.
We rely on our marketing efforts and channels to promote our brand
and acquire new customers. These efforts may require significant
expense and may not be successful or cost-effective.
We use
a variety of marketing channels to promote our brands, including
online keyword search, advertising and email and social media
marketing. If we lose access to one or more of these channels, such
as online keyword search, because the costs of advertising become
prohibitively expensive or for other reasons, we may become unable
to promote our brand effectively, which could limit our ability to
grow our business. Further, if our marketing activities fail to
generate traffic to our website, attract customers and lead to new
and recurring subscriptions at the levels we anticipate, our
business and operating results would be adversely affected. There
can be no assurance our marketing efforts will succeed or be
cost-efficient, and if our customer acquisition costs increase, our
business, operating results and financial performance could be
adversely affected.
In
addition, search engines or social networking sites may change
their advertising policies from time to time. If any change to
these policies delays or prevents us from advertising through these
channels, it could result in reduced traffic to our website and
sales of our subscriptions.
We may need additional equity, debt or other financing in the
future, which we may not be able to obtain on acceptable terms, or
at all, and any additional financing may result in restrictions on
our operations or substantial dilution to our
stockholders.
We may
need to raise funds in the future, for example, to develop new
technologies, expand our business, respond to competitive pressures
and make acquisitions. We may try to raise additional funds through
public or private financings, strategic relationships or other
arrangements. Although our credit agreement limits our ability to
incur additional indebtedness, these restrictions may be amended
with the consent of our lenders. Accordingly, under certain
circumstances, we may incur substantial additional
debt.
Our
ability to obtain debt or equity funding will depend on a number of
factors, including market conditions, interest rates, our operating
performance, our credit rating and investor interest. Additional
funding may not be available to us on acceptable terms or at all.
If adequate funds are not available, we may be required to reduce
expenditures, including curtailing our growth strategies, foregoing
acquisitions or reducing our product development efforts. If we
succeed in raising additional funds through the issuance of equity
or equity-linked securities, then existing stockholders could
experience substantial dilution. If we raise additional funds
through the issuance of debt securities or preferred stock, these
new securities would have rights, preferences and privileges senior
to those of the holders of our common stock. In addition, any such
issuance could subject us to restrictive covenants relating to our
capital raising activities and other financial and operational
matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including
potential acquisitions. Further, to the extent we incur additional
indebtedness or such other obligations, our possible inability to
service our debt, would increase.
Changes in accounting principles, or interpretations thereof, may
cause unexpected financial reporting fluctuations and adversely
affect our operating results and financial statements going
forward.
We
prepare our consolidated financial statements and the related notes
in accordance with generally accepted accounting principles in the
U.S. (GAAP). These principles are subject to interpretation by the
Financial Accounting Standards Board (FASB), the SEC and various
bodies formed to create and interpret appropriate accounting
principles. Accounting rules and regulations are continually
changing in ways that could materially impact our financial
statements, and a change in the current accounting principles could
have a significant effect on our reported results or may
retroactively affect previously reported transactions.
Additionally, the adoption of new or revised accounting principles
may require us to make significant changes to our systems,
processes and controls.
See
Note 1 to our consolidated financial statements for information
regarding recent accounting pronouncements.
Because we are generally required to recognize revenue for our
products over the term of the applicable agreement, changes in our
sales may not be immediately reflected in our operating
results.
As
described in Note 1 to our consolidated financial statements, we
generally recognize revenue from our customers ratably over the
respective terms of their subscriptions in accordance with GAAP.
Our subscription terms are typically one year but can range from
monthly terms to multi-annual terms of up to 10 years depending on
the product. Accordingly, increases in sales during a particular
period do not translate into immediate, proportional increases in
revenue during such period, and a substantial portion of the
revenue we recognize during a quarter is derived from deferred
revenue from customer subscriptions we entered into during previous
quarters. As a result, our margins may suffer despite substantial
sales activity during a particular period, since GAAP does not
permit us to recognize all of the revenue from our sales
immediately. Conversely, a decline in new or renewed subscriptions
in any one quarter may not be reflected in our revenue for that
quarter and the existence of substantial deferred revenue may
prevent deteriorating sales activity from becoming immediately
observable in our consolidated statement of
operations.
Our failure to properly register or maintain our customers' domain
names could subject us to additional expenses, claims of loss or
negative publicity that could have a material adverse effect on our
business.
System
and process failures related to our domain name registration
product may result in inaccurate and incomplete information in our
domain name database. Despite testing, system and process failures
may remain undetected or unknown, which could result in compromised
customer data, loss of or delay in revenues, failure to achieve
market acceptance, injury to our reputation or increased product
costs, any of which could harm our business. Furthermore, the
requirements for securing and renewing domain names vary from
registry to registry and are subject to change. We cannot guarantee
we will be able to readily adopt and comply with the various
registry requirements. Our failure or inability to properly
register or maintain our customers' domain names, even if we are
not at fault, might result in significant expenses and subject us
to claims of loss or to negative publicity, which could harm our
business, brand and operating results.
We rely heavily on the reliability, security and performance of our
internally developed systems and operations. Any difficulties in
maintaining these systems may result in damage to our brand,
service interruptions, decreased customer service or increased
expenditures.
The
reliability and continuous availability of the software, hardware
and workflow processes underlying our internal systems, networks
and infrastructure and the ability to deliver our products are
critical to our business, and any interruptions resulting in our
inability to timely deliver our products, or materially impacting
the efficiency or cost with which we provide our products, would
harm our brand, profitability and ability to conduct business. In
addition, many of the software and other systems we currently use
will need to be enhanced over time or replaced with equivalent
commercial products or services, which may not be available on
commercially reasonable terms or at all. Enhancing or replacing our
systems, networks or infrastructure could entail considerable
effort and expense. If we fail to develop and execute reliable
policies, procedures and tools to operate our systems, networks or
infrastructure, we could face a substantial decrease in workflow
efficiency and increased costs, as well as a decline in our
revenue.
Undetected or unknown defects in our products could harm our
business and future operating results.
The
products we offer or develop, including our proprietary technology
and technology provided by third parties, could contain undetected
defects or errors. The performance of our products could have
unforeseen or unknown adverse effects on the networks over which
they are delivered as well as, more broadly, on Internet users and
consumers and third-party applications and services utilizing our
solutions. These adverse effects, defects and errors, and other
performance problems relating to our products could result in legal
claims against us that harm our business and damage our reputation.
The occurrence of any of the foregoing could result in compromised
customer data, loss of or delay in revenues, an increase in our
annual refund rate, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our
reputation or brand and increased costs. In addition, while our
terms of service specifically disclaim certain warranties, and
contain limitations on our liability, courts may still hold us
liable for such claims if asserted against us.
Failure to adequately protect and enforce our intellectual property
rights could substantially harm our business and operating
results.
The
success of our business depends in part on our ability to protect
and enforce our trademarks, copyrights, trade secrets and other
intellectual property rights. We attempt to protect our
intellectual property under trademark, copyright and trade secret
laws, and through a combination of confidentiality procedures,
contractual provisions and other methods, all of which offer only
limited protection.
We rely
on our proprietary technology and confidential proprietary
information, including trade secrets and know-how. Despite our
efforts to protect the proprietary and confidential nature of such
technology and information, unauthorized parties may attempt to
misappropriate, reverse engineer or otherwise obtain and use them.
The contractual provisions in confidentiality agreements and other
agreements we generally enter into with employees, consultants,
partners, vendors and customers may not prevent unauthorized use or
disclosure of our proprietary technology or intellectual property
rights and may not provide an adequate remedy in the event of
unauthorized use or disclosure of our proprietary technology or
intellectual property rights. Moreover, policing unauthorized use
of our technologies, products and intellectual property is
difficult, expensive and time-consuming, particularly in foreign
countries where the laws may not be as protective of intellectual
property rights as those in the U.S. and where mechanisms for
enforcement of intellectual property rights may be weak. To the
extent we expand our international activities, our exposure to
unauthorized copying and use of our products and proprietary
information may increase. We may be unable to determine the extent
of any unauthorized use or infringement of our products,
technologies or intellectual property rights.
From
time to time, legal action by us may be necessary to enforce our
trademarks and other intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the
intellectual property rights of others or to defend against claims
of infringement or invalidity. Such litigation could result in
substantial costs and diversion of resources, distract management
and technical personnel and negatively affect our business,
operating results and financial condition. If we are unable to
protect our intellectual property rights, we may find ourselves at
a competitive disadvantage to others who need not incur the
additional expense, time and effort required to create the
innovative products that have enabled us to be successful to date.
Any inability on our part to protect adequately our intellectual
property may have a material adverse effect on our business,
operating results and financial condition.
Our business depends on our customers continued and unimpeded
access to the Internet and the development and maintenance of
Internet infrastructure. Internet access providers may be able to
block, degrade or charge for access to certain of our products,
which could lead to additional expenses and the loss of
customers.
Our
products depend on the ability of our customers to access the
Internet. Currently, this access is provided by companies having
significant market power in the broadband and Internet access
marketplace, including incumbent telephone companies, cable
companies, mobile communications companies and government-owned
service providers. The Federal Communications Commission passed
Open Internet rules in February 2015, effective in June 2015,
generally providing for Internet neutrality with respect to fixed
and mobile broadband Internet service. Net Neutrality rules were
intended to keep the internet open and fair. Internet providers
were explicitly prohibited from speeding up or slowing down traffic
from specific websites and apps. In December 2017, the FCC replaced
net neutrality which did away with rules barring internet providers
from blocking or slowing down access to online content.
Additionally, the FCC has eliminated a rule barring
providers’ from prioritizing their own content. These changes
could adversely affect the growth, popularity or use of the
Internet and could decrease the demand for our products and
increase our operating costs causing harm to our business.
Internationally, government regulation concerning the Internet, and
in particular, network neutrality, may be developing or
non-existent. Within such a regulatory environment, we could
experience discriminatory or anti-competitive practices impeding
both our and our customers' domestic and international growth,
increasing our costs or adversely affecting our
business.
Our business is exposed to risks associated with credit card and
other online payment chargebacks and fraud.
A
majority of our revenue is processed through credit cards and other
online payments. If our refunds or chargebacks increase, our
processors could require us to create reserves, increase fees or
terminate their contracts with us, which would have an adverse
effect on our financial condition.
Our
failure, or our payment processors failure to limit fraudulent
transactions conducted on our websites, such as through the use of
stolen credit card numbers, could also subject us to liability and
adversely impact our reputation. Under credit card association
rules, penalties may be imposed at the discretion of the
association for inadequate fraud protection. Any such potential
penalties would be imposed on our credit card processor by the
association. Under our contracts with our payment processors, we
are required to reimburse them for such penalties. However, we face
the risk that we may fail to maintain an adequate level of fraud
protection and that one or more credit card associations or other
processors may, at any time, assess penalties against us or
terminate our ability to accept credit card payments or other form
of online payments from customers, which would have a material
adverse effect on our business, financial condition and operating
results.
We
could also incur significant fines or lose our ability to give
customers the option of using credit cards to pay for our products
if we fail to follow payment card industry data security standards,
even if there is no compromise of customer information. Although we
believe we are in compliance with payment card industry data
security standards and do not believe there has been a compromise
of customer information, it is possible that at times either we may
not have been in full compliance with these standards. Accordingly,
we could be fined, which could impact our financial condition, or
certain of our products could be suspended, which would cause us to
be unable to process payments using credit cards. If we are unable
to accept credit card payments, our business, financial condition
and operating results may be adversely affected.
In
addition, we could be liable if there is a breach of the payment
information. Online commerce and communications depend on the
secure transmission of confidential information over public
networks. We rely on encryption and authentication technology to
authenticate and secure the transmission of confidential
information, including cardholder information. However, we cannot
ensure this technology will prevent breaches of the systems we use
to protect cardholder information. Although we maintain network
security insurance, we cannot be certain our coverage will be
adequate for liabilities actually incurred or insurance will
continue to be available to us on reasonable terms, or at all. In
addition, some of our partners also collect or possess information
about our customers, and we may be subject to litigation or our
reputation may be harmed if our partners fail to protect our
customers' information or if they use it in a manner inconsistent
with our policies and practices. Data breaches can also occur as a
result of non-technical issues. Under our contracts with our
processors, if there is unauthorized access to, or disclosure of,
credit card information we store, we could be liable to the credit
card issuing banks for their cost of issuing new cards and related
expenses.
Activities of customers or the content of their websites could
damage our reputation and brand or harm our business and financial
results.
As a
provider of domain name registration and podcast and web hosting,
we may be subject to potential liability for the activities of our
customers on or in connection with their domain names, podcast
content, websites or for the data they store on our servers.
Although our terms of service prohibit illegal use of our products
by our customers and permit us to take down content or suspend
accounts or take other appropriate actions for illegal use,
customers may nonetheless engage in prohibited activities or upload
or store content with us in violation of applicable law or the
customer's own policies, which could subject us to liability.
Furthermore, our reputation and brand may be negatively impacted by
the actions of customers that are deemed to be hostile, offensive
or inappropriate. We do not proactively monitor or review the
appropriateness of the domain names our customers register or the
content of their podcasts or websites, and we do not have control
over customer activities. The safeguards we have in place may not
be sufficient to avoid harm to our reputation and brand, especially
if such hostile, offensive or inappropriate use is high
profile.
Several
U.S. federal statutes may apply to us with respect to various
activities of our customers, including: the Digital Millennium
Copyright Act of 1998 (the DMCA), which provides recourse for
owners of copyrighted material who believe their rights under U.S.
copyright law have been infringed on the Internet; the
Communications Decency Act of 1996 (the CDA), which regulates
content on the Internet unrelated to intellectual property; and the
Anticybersquatting Consumer Protection Act (the ACPA), which
provides recourse for trademark owners against cybersquatters. The
DMCA and the CDA generally protect online service providers like us
that do not own, or control podcast or website content posted by
customers from liability for certain activities of customers, such
as the posting of defamatory or obscene content, unless the online
service provider is participating in the unlawful conduct. For
example, the safe harbor provisions of the DMCA shield Internet
service providers and other intermediaries from direct or indirect
liability for copyright infringement. However, under the DMCA, we
must follow the procedures for handling copyright infringement
claims set forth in the DMCA including expeditiously removing or
disabling access to the allegedly infringing material upon the
receipt of a proper notice from, or on behalf of, a copyright owner
alleging infringement of copyrighted material located on websites
we host. Under the CDA, we are generally not responsible for the
customer-created content hosted on our servers and thus are
generally immunized from liability for torts committed by others.
Consequently, we do not monitor hosted websites or prescreen the
content placed by our customers. Under the safe harbor provisions
of the ACPA, domain name registrars are shielded from liability in
many circumstances, including cybersquatting, although the safe
harbor provisions may not apply if our activities are deemed
outside the scope of registrar functions.
Although
these statutes and case law in the U.S. have generally shielded us
from liability for customer activities to date, court rulings in
pending or future litigation may narrow the scope of protection
afforded us under these laws. Neither the DMCA nor the CDA
generally apply to claims of trademark violations, and thus they
may be inapplicable to many of the claims asserted against our
company. Furthermore, notwithstanding the exculpatory language of
these bodies of law, the activities of our customers may result in
threatened or actual litigation against us. If such claims are
successful, our business and operating results could be adversely
affected, and even if the claims do not result in litigation or are
resolved in our favor, these claims, and the time and resources
necessary to resolve them, could divert the resources of our
management and adversely affect our business and operating
results.
In
addition, laws governing these activities are unsettled in many
international jurisdictions or may prove difficult or impossible
for us to comply with in some international jurisdictions. Also,
other existing bodies of law, including the criminal laws of
various states, may be deemed to apply or new statutes or
regulations may be adopted in the future, any of which could expose
us to further liability and increase our costs of doing
business.
We may face liability or become involved in disputes over
registration and transfer of domain names and control over
websites.
As a
provider of web-based and cloud-based products, including as a
registrar of domain names and related products, we from time to
time become aware of disputes over ownership or control of customer
accounts, websites or domain names. We could face potential claims
of tort law liability for our failure to renew a customer's domain.
We could also face potential tort law liability for our role in the
wrongful transfer of control or ownership of accounts, websites or
domain names. The safeguards and procedures we have adopted may not
be successful in insulating us against liability from such claims
in the future. In addition, we face potential liability for other
forms of account, website or domain name "hijacking," including
misappropriation by third parties of our network of customer
accounts, websites or domain names and attempts by third parties to
operate accounts, websites or domain names or to extort the
customer whose accounts, websites or domain names were
misappropriated. Furthermore, we are exposed to potential liability
as a result of our domain privacy product, wherein the identity and
contact details for the domain name registrant are
masked.
Disputes
involving registration or control of domain names are often
resolved through the Uniform Domain Name Dispute Resolution Policy
(the UDRP), ICANN's administrative process for domain name dispute
resolution, or less frequently through litigation under the ACPA,
or under general theories of trademark infringement or dilution.
The UDRP generally does not impose liability on registrars, and the
ACPA provides that registrars may not be held liable for
registration or maintenance of a domain name absent a showing of
the registrar's bad faith intent to profit. However, we may face
liability if we act in bad faith or fail to comply in a timely
manner with procedural requirements under these rules, including
forfeiture of domain names in connection with UDRP actions. In
addition, domain name registration disputes and compliance with the
procedures under the ACPA and URDP typically require at least
limited involvement by us and, therefore, increase our cost of
doing business. The volume of domain name registration disputes may
increase in the future as the overall number of registered domain
names increases.
We are dependent on the continued services and performance of our
senior management and other key employees, the loss of any of whom
could adversely affect our business, operating results and
financial condition.
Our
future performance depends on the continued services and
contributions of our senior management and other key employees to
execute on our business plan and to identify and pursue new
opportunities and product innovations. The loss of services of
senior management or other key employees could significantly delay
or prevent the achievement of our development and strategic
objectives. The loss of the services of our senior management or
other key employees for any reason could adversely affect our
business, financial condition and operating results.
If we are unable to hire, retain and motivate qualified personnel,
our business would suffer.
Our
future success and ability to innovate depends, in part, on our
ability to continue to attract and retain highly skilled personnel.
The loss of the services of any of our key personnel, the inability
to attract or retain qualified personnel or delays in hiring
required personnel, may seriously harm our business, financial
condition and operating results. Our ability to continue to attract
and retain highly skilled personnel, specifically employees with
technical and engineering skills and employees with language skills
and cultural knowledge of the geographic markets we have recently
expanded to or that we intend to expand to in the near future, will
be critical to our future success. Competition for highly skilled
personnel is frequently intense, particularly in U.S. tech hubs. As
a public company, the ability of our employees to sell their stock
received pursuant to equity awards in the public market may lead to
a larger than normal turnover rate. We intend to issue stock
options or other equity awards as key components of our overall
compensation and employee attraction and retention efforts. In
addition, we are required under GAAP to recognize compensation
expense in our operating results for employee equity-based
compensation under our equity grant programs, which may negatively
impact our operating results and may increase the pressure to limit
equity-based compensation. We may not be successful in attracting,
assimilating or retaining qualified personnel to fulfill our
current or future needs.
The requirements of being a public company may strain our
resources.
As a
public company, we are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the Exchange Act), the
Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). We expect the
requirements of these rules and regulations will continue to
increase our legal, accounting and financial compliance costs, make
some activities more difficult, time-consuming and costly, and
place significant strain on our personnel, systems and resources.
Management's attention may be diverted from other business
concerns, which could adversely affect our business and operating
results.
The
Sarbanes-Oxley Act requires us, among other things, to maintain
effective disclosure controls and procedures and internal control
over financial reporting. We continue to develop and refine our
disclosure controls and other procedures designed to ensure that
information required to be disclosed by us in the reports we will
file with the SEC is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and that
information required to be disclosed in reports under the Exchange
Act is accumulated and communicated to our principal executive and
financial officers. We also continue to improve our internal
control over financial reporting. In order to maintain and improve
the effectiveness of our disclosure controls and procedures and
internal control over financial reporting, we anticipate we will
continue to expend, significant resources, including legal and
accounting-related costs and management oversight.
Our business is subject to the risks of earthquakes, fire, power
outages, floods and other catastrophic events and to interruption
by man-made problems such as terrorism.
A
significant natural disaster, such as an earthquake, fire or flood
could have a material adverse impact on our business, operating
results and financial condition. Natural disasters could lead to
significant power outages and otherwise affect our data centers as
well as our infrastructure vendors' abilities to provide
connectivity and perform services on a timely basis. In the event
our or our service providers' IT systems' abilities are hindered by
any of the events discussed above, we and our customers' websites
could experience downtime, and our products could become
unavailable. In addition, acts of terrorism and other geopolitical
unrest could cause disruptions in our business or the business of
our infrastructure vendors, partners or customers or the economy as
a whole. Any disruption in the business or operations of our data
center hosting providers or customers could have a significant
adverse effect on our operating results and financial performance.
All of the aforementioned risks may be further increased if our
disaster recovery plans prove to be ineffective in the event of
such a disaster.
The Company may be responsible for certain obligations retained by
FAB.
Although
the Company does not expect to be liable for any obligations not
expressly assumed by the Company in connection with its spin-off
from its former parent company FAB Universal Corp.
(“FAB”) in 2016, it is possible that the Company could
be required to assume responsibility for certain obligations
retained by FAB should FAB fail to pay or perform its retained
obligations. FAB may have obligations that at the present time are
unknown or unforeseen. As the nature of such obligations are
unknown, we are unable to provide an estimate of the potential
obligation. However, should FAB incur such obligations, the Company
may be financially obligated to pay any losses
incurred.
Risks Related to Our Industry
Governmental and regulatory policies or claims concerning the
domain name registration system and the Internet in general, and
industry reactions to those policies or claims, may cause
instability in the industry and disrupt our business.
ICANN
is a multi-stakeholder, private sector, not-for-profit corporation
formed in 1998 for the express purposes of overseeing a number of
Internet related tasks, including managing the DNS allocation of IP
addresses, accreditation of domain name registrars and registries
and the definition and coordination of policy development for all
of these functions. We are accredited by ICANN as a domain name
registrar and thus our ability to offer domain name registration
products is subject to our ongoing relationship with, and
accreditation by, ICANN.
ICANN
has been subject to strict scrutiny by the public and governments
around the world, as well as multi-governmental organizations such
as the United Nations, with many of those bodies becoming
increasingly interested in Internet governance. There is also
uncertainty concerning the nature and significance of the recent
transition from U.S. oversight of ICANN to oversight of ICANN by
its members.
Additionally, we
continue to face the possibility that:
●
the structure and
accountability mechanisms contained in ICANN's new bylaws are
untested, which may result in ICANN not being accountable to its
stakeholders and unable to make, implement or enforce its
policies;
●
the U.S. or another
government or intergovernmental organization may reassess ICANN's
role in overseeing the domain name registration
market;
●
the Internet
community, the U.S. government or other governments may
(i) refuse to recognize ICANN's authority or support its
policies, (ii) attempt to exert pressure on ICANN, or
(iii) enact laws in conflict with ICANN's policies, each of
which could create instability in the domain name registration
system;
●
governments, via
ICANN's Governmental Advisory Committee (GAC), may seek greater
influence over ICANN policies and contracts with registrars and may
advocate changes that may adversely affect our
business;
●
some of ICANN's
policies and practices, such as ICANN's position on privacy and
proxy domain name registrations, and the policies and practices
adopted by registries and registrars, could be found to conflict
with the laws of one or more jurisdictions, including the GDPR, or
could be materially changed in a way that negatively impacts the
sale of our products;
●
the terms of the
Registrar Accreditation Agreement (the RAA) under which we are
accredited as a registrar, could change in ways that are
disadvantageous to us or under certain circumstances could be
terminated by ICANN, thereby preventing us from operating our
registrar service, or ICANN could adopt unilateral changes to the
RAA that are unfavorable to us, that are inconsistent with our
current or future plans, or that affect our competitive
position;
●
International
regulatory or governing bodies, such as the International
Telecommunications Union, a specialized agency of the United
Nations, or the European Union, may gain increased influence over
the management and regulation of the domain name registration
system, leading to increased regulation in areas such as taxation,
privacy and the monitoring of our customers' hosted
content;
●
ICANN or any
third-party registries may implement policy changes impacting our
ability to run our current business practices throughout the
various stages of the lifecycle of a domain name;
●
the U.S. Congress
or other legislative bodies in the U.S. could take action
unfavorable to us or influencing customers to move their business
from our products to those located outside the U.S.;
●
the U.S. Congress
or other legislative bodies in the U.S. or in other countries could
adopt laws that erode the safe harbors from third-party liability
in the CDA and DMCA;
●
ICANN could fail to
maintain its role, potentially resulting in instability in DNS
services administration;
●
some governments
and governmental authorities outside the U.S. have in the past
disagreed, and may in the future disagree, with the actions,
policies or programs of ICANN and registries relating to the DNS,
which could fragment the single, unitary Internet into a
loosely-connected group of one or more networks, each with
different rules, policies and operating protocols; and
●
multi-party review
panels established by ICANN's new bylaws may take positions
unfavorable to our business.
If any
of these events occur, they could create instability in the domain
name registration system and may make it difficult for us to
continue to offer existing products and introduce new products or
serve customers in certain markets. These events could also disrupt
or suspend portions of our domain name registration product and
subject us to additional restrictions on how the registrar and
registry products businesses are conducted, which would result in
reduced revenue.
In
addition, the requirements of the privacy laws around the world,
including the GDPR, are known to be in conflict with ICANN's
policies and contracts related to how registrars collect, transmit
and publish the personal information of domain name registrants in
publicly accessible WHOIS directories. Although ICANN implemented a
temporary policy to alleviate some of these conflicts, we are
working with ICANN and our industry counterparts to reconcile these
conflicts. If ICANN is unable or unwilling to harmonize these
policies and contracts with applicable privacy laws, our efforts to
comply with applicable laws may cause us to violate our existing
ICANN contractual obligations. As a result, we could experience
difficulties in selling domain names and keeping our existing
customer domain names under management if we are unable to reach an
amicable contractual solution with ICANN, which could have a
material adverse effect on our operations and revenue.
ICANN periodically authorizes the introduction of new TLDs, and we
may not have the right to register new domain names to our
customers based on such TLDs, which could adversely impact our
business and results of operations.
ICANN
has periodically authorized the introduction of new TLDs and made
domain names related to them available for registration. Our
competitive position depends in part on our ability to secure
access to these new TLDs. A significant portion of our business
relies on our ability to sell domain name registrations to our
customers, and any limitations on our access to newly-created TLDs
could adversely impact our ability to sell domain name
registrations to customers, and thus adversely impact our
business.
In
2013, ICANN significantly expanded the number of gTLDs, which
resulted in the delegation of new gTLDs commencing in 2014 (the
“Expansion Program”). The Expansion Program could
substantially change the domain name industry in unexpected ways
and is expected to result in an increase in the number of domains
registered by our competitors. In addition, if registries
participating in the Expansion Program cease operations for any
reason, we may have to dedicate Customer Support and development
resources to transition our customers’ domains to a new gTLD
registry. If a large number of such registries fail, it could
diminish consumer confidence in our industry and reduce our future
sales of domain names, either in legacy gTLDs or those gTLDs
created as part of the Expansion Program. If we do not properly
manage our response to the change in business environment, and
accurately predict the market's preference for specific gTLDs, it
could adversely impact our competitive position or market
share.
The relevant domain name registry and ICANN impose a charge upon
each registrar for the administration of each domain name
registration. If these fees increase, it would have a significant
impact upon our operating results.
Each
registry typically imposes a fee in association with the
registration of each domain name. For example, VeriSign, the
registry for .com and .net, has a current list price of $7.85
annually for each .com registration, and ICANN currently charges
$0.18 annually for most domain names registered in the gTLDs
falling within its purview. In 2016, VeriSign and ICANN agreed
VeriSign will continue to be the exclusive registry for the .com
gTLD through November 2024. In 2018, Verisign and the U.S.
Department of Commerce agreed to extend their Cooperative Agreement
through 2024. As part of that extension, Verisign will have the
right to raise .com wholesale prices up to 7% (per registration
year) each year starting in November 2020, subject to ICANN's
approval. As a result, costs to our customers could be higher,
which could have an adverse impact on our results of
operations.
We have
no control over ICANN, VeriSign or any other domain name registries
and cannot predict their future fee structures. While we do not
currently do so, we have the discretion to impose service fees on
our customers in the future. In addition, pricing of new gTLDs is
generally not set or controlled by ICANN, which in certain
instances has resulted in aggressive price increases on certain
particularly successful new gTLDs. The increase in these fees with
respect to any new gTLD either must be included in the prices we
charge to our customers, imposed as a surcharge or absorbed by us.
If we absorb such cost increases or if surcharges result in
decreases in domain registrations, our business, operating results
and financial performance may be adversely affected.
Our business and financial condition could be harmed materially if
small consumers and small businesses and ventures were no longer
able to rely upon the existing domain name registration
system.
The
domain name registration market continues to develop and adapt to
changing technology. This development may include changes in the
administration or operation of the Internet, including the creation
and institution of alternate systems for directing Internet traffic
without using the existing domain name registration system. The
widespread acceptance of any alternative system, such as mobile
applications or closed networks, could eliminate the need to
register a domain name to establish an online presence and could
materially and adversely affect our business.
Changes in state taxation laws and regulations may discourage the
registration or renewal of domain names for
e-commerce.
Due to
the global nature of the Internet, it is possible that any U.S. or
foreign federal, state or local taxing authority might attempt to
regulate our transmissions or levy transaction, income or other
taxes relating to our activities. Tax authorities at the
international, federal, state and local levels are regularly
reviewing the appropriate treatment of companies engaged in
e-commerce. New or revised international, federal, state or local
tax regulations may subject either us or our customers to
additional sales, income and other taxes. We cannot predict the
effect of current attempts to impose sales, income or other taxes
on e-commerce. New or revised taxes, in particular sales and other
transaction taxes, would likely increase the cost of doing business
online and decrease the attractiveness of advertising and selling
goods and services over the Internet. New taxes could also create
significant increases in internal costs necessary to capture data
and to collect and remit taxes. Any of these events could have an
adverse effect on our business and results of
operations.
Risks related to our Common Stock and management's percentage of
ownership of our Common Stock
The market price and trading volume of our Common Stock may be
volatile and may face negative pressure.
There
may be significant fluctuations in the Company’s Common Stock
price. Investors’ interest may not lead to a liquid trading
market and the market price of our Common Stock may be volatile.
This may result in short or long-term negative pressure on the
trading price of shares of our Common Stock. The market price of
our Common Stock may be volatile due to the risks and uncertainties
described in this “Risk Factors” section, as well as
other factors that may affect the market price, such
as:
●
Conditions and
publicity regarding the podcast hosting industries
generally;
●
Price and volume
fluctuations in the stock market at large which do not relate to
the Company’s operating performance; and
●
Comments by
securities analysts or government officials, including those with
regard to the viability or profitability of the podcasting sector
generally or with regard to our ability to meet market
expectations.
●
The stock market
has from time to time experienced extreme price and volume
fluctuations that are unrelated to the operating performance of
particular companies.
Future sales of our Common Stock could adversely affect our stock
price and our ability to raise capital in the future.
Sales
of substantial amounts of the Company’s common stock could
harm the market price of its stock. This also could harm our
ability to raise capital in the future. The Company’s shares
are freely tradable without restriction under the Securities Act of
1933 (the “Securities Act”) by persons other than
“affiliates,” as defined under the Securities Act. Any
sales of substantial amounts of the Company’s common stock in
the public market, or the perception that that sales might occur,
could harm the market price of the Company’s common
stock.
The
Company will not solicit the approval of its stockholders for the
issuance of authorized but unissued shares of the Company’s
common stock unless this approval is deemed advisable by our board
of directors or is required by applicable law, regulation or any
applicable stock exchange listing requirements. The issuance of
those shares could dilute the value of the Company’s
outstanding shares of common stock.
Due to the instability in our common stock price, you may not be
able to sell your shares at a profit.
The
public market for our common stock is limited and volatile. As with
many other companies, any market price for our shares is likely to
continue to be very volatile. In addition, the other risk factors
disclosed in this Form 10-K may significantly affect our stock
price. The volatility and limited volume of our stock price may
make it more difficult for you to resell shares when you want at
prices you find attractive.
In
addition, the stock market in general and the market for small
podcast and Web hosting companies, in particular, have experienced
extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors may reduce our
stock price, regardless of our operating performance.
The sale of already outstanding shares of our common stock could
hurt our common stock market price.
The
number of our shares available for resale in the public market may
exceed the number of shares that purchasers wish to buy. This
imbalance may place downward pressure on our stock
price.
Sales
of substantial amounts of the Company’s common stock could
harm the market price of its stock. This also could harm the
Company’s ability to raise capital in the future. Any sales
of substantial amounts of the Company’s common stock in the
public market, or the perception that that sales might occur, could
harm the market price of the Company’s common
stock.
Failure to meet financial expectations could have an adverse impact
on the market price of the Company’s common
stock.
The
Company’s ability to achieve its financial targets is subject
to a number of risks, uncertainties and other factors affecting its
business and the podcasting and hosting industries generally, many
of which are beyond the Company’s control. These factors may
cause actual results to differ materially. We describe a number of
these factors throughout this document, including in these Risk
Factors. The Company cannot assure you that it will meet
these targets. If the Company is not able to meet these targets, it
could harm the market price of its common stock.