ITEM 1A. RISK FACTORS
Our operations and
financial results are subject to various risks and uncertainties, including
those described below, which could adversely affect our business, financial
condition, results of operations, cash follows and the trading price of our
common stock. You should carefully consider the risks and uncertainties
described below before making an investment decision.
We have marked with an
asterisk (*) those risks described below that reflect substantive changes from
the risks described in our Annual Report on Form 10-K for the year ended
December 31, 2016.
Risks Related to Our
Business and Industry
*If we are unable to
increase traffic to our mobile app and website, or user engagement on our
platform declines, our revenue, business and operating results may be
harmed.
We derive substantially all
of our revenue from the sale of impression- and click-based advertising. Because
traffic to our platform determines the number of ads we are able to show,
affects the value of those ads to businesses and influences the content creation
that drives further traffic, slower traffic growth rates may harm our business
and financial results. As a result, our ability to grow our business depends on
our ability to increase traffic to and user engagement on our platform. Our
traffic could be adversely affected by factors including:
●
|
Reliance on Internet Search
Engines
. As discussed in
greater detail below, we rely on Internet search engines to drive traffic
to our platform, including our mobile app. However, the display, including
rankings, of unpaid search results can be affected by a number of factors,
many of which are not in our direct control, and may change frequently.
For example, a search engine may change its ranking algorithms,
methodologies or design layouts. As a result, links to our platform may
not be prominent
enough to
drive traffic to our platform, and we may not be in a position to
influence the results. Although Internet search engine results have
allowed us to attract a large audience with low organic traffic
acquisition costs to date, if they fail to drive sufficient traffic to our
platform in the future, we may need to increase our marketing expenses,
which could harm our operating results.
|
38
●
|
Increasing Competition
. The market for information regarding local
businesses is intensely competitive and rapidly changing. If the
popularity, usefulness, ease of use, performance and reliability of our
products and services do not compare favorably to those of our
competitors, traffic may decline.
|
●
|
Review Concentration
. Our restaurant and shopping categories
together accounted for approximately 40% of the businesses that had been
reviewed on our platform and approximately 55% of the cumulative reviews
as of June 30, 2017. If the high concentration of reviews in these
categories generates a perception that our platform is primarily limited
to these categories, traffic may not increase or may
decline.
|
●
|
Our Recommendation Software
. If our automated software does not
recommend helpful content or recommends unhelpful content, consumers may
reduce or stop their use of our platform. While we have designed our
technology to avoid recommending content that we believe to be unreliable
or otherwise unhelpful, we cannot guarantee that our efforts will be
successful.
|
●
|
Content Scraping
. From time to time, other companies copy
information from our platform without our permission, through website
scraping, robots or other means, and publish or aggregate it with other
information for their own benefit. This may make them more competitive and
may decrease the likelihood that consumers will visit our platform to find
the local businesses and information they seek. This may also result in increases to our reported traffic metrics that do not represent increases in consumer usage of our platform. For example, we recently discovered that a portion of our desktop traffic since the third quarter of 2016 has been attributable to a single robot. Though we strive to detect
and prevent this third-party conduct, we may not be able to detect it in a
timely manner and, even if we could, may not be able to prevent it. In
some cases, particularly in the case of third parties operating outside of
the United States, our available remedies may be inadequate to protect us
against such conduct.
|
●
|
Macroeconomic Conditions
. Consumer purchases of discretionary items
generally decline during recessions and other periods in which disposable
income is adversely affected. As a result, adverse economic conditions may
impact consumer spending, particularly with respect to local businesses,
which in turn could adversely impact the number of consumers visiting our
platform.
|
●
|
Internet Access
. The adoption of any laws or regulations
that adversely affect the growth, popularity or use of the Internet,
including laws impacting Internet neutrality, could decrease the demand
for our services. Similarly, any actions by companies that provide
Internet access that degrade, disrupt or increase the cost of user access
to our platform could undermine our operations and result in the loss of
traffic.
|
We also anticipate that our
traffic growth rate will continue to slow over time, and potentially decrease in
certain periods, as our business matures and we achieve higher penetration
rates. In particular, we have already entered most major geographic markets
within the United States and Canada, and we do not expect to pursue expansion in
other international markets in the foreseeable future; further expansion in
smaller markets may not yield similar results or sustain our growth. That our
traffic growth has slowed in recent quarters even as we have expanded our
operations is a reflection of this trend. As our traffic growth rate slows, our
success will become increasingly dependent on our ability to increase levels of
user engagement on our platform. This dependence may increase as the portion of
our revenue derived from performance-based advertising increases. A number of
factors may negatively affect our user engagement, including if:
●
|
users engage with other products, services
or activities as an alternative to our
platform;
|
●
|
there is a decrease in the perceived quality
of the content contributed by our users;
|
●
|
we fail to introduce new and improved
products or features, or we introduce new products or features that do not
effectively address consumer needs or otherwise alienate
consumers;
|
●
|
technical or other problems negatively
impact the availability and reliability of our platform or otherwise
affect the user experience;
|
●
|
users have difficulty installing, updating
or otherwise accessing our platform as a result of actions by us or third
parties that we rely on to distribute our
products;
|
●
|
users believe that their experience is
diminished as a result of the decisions we make with respect to the
frequency, relevance and prominence of the advertising we display;
and
|
●
|
we do not maintain our brand image or our
reputation is damaged.
|
*Consumers are
increasingly using mobile devices to access online services. If our mobile
platform and mobile advertising products are not compelling, or if we are unable
to operate effectively on mobile devices, our business could be adversely
affected.
39
The number of people who
access information about local businesses through mobile devices, including
smartphones, tablets and handheld computers, has increased dramatically over the
past few years and is expected to continue to increase. Although many consumers
access our platform both on their mobile devices and through personal computers,
we have seen substantial growth in mobile usage. We anticipate that growth in
use of our mobile platform will be the driver of our growth for the foreseeable
future and that usage through personal computers may continue to decline. As a
result, we must continue to drive adoption of and user engagement on our mobile
platform, and our mobile app in particular. If we are unable to drive continued
adoption of and engagement on our mobile app, our business may be harmed and we
may be unable to decrease our reliance on traffic from Google and other search
engines.
In order to attract and
retain engaged users of our mobile platform, the mobile products and services we
introduce must be compelling. However, the ways in which users engage with our
platform and consume content has changed over time, and we expect it will
continue to do so as users increasingly engage via mobile. This may make it more
difficult to develop mobile products that consumers find useful or provide them
with the information they seek, and may also negatively affect our content if
users do not continue to contribute high quality content on their mobile
devices. In addition, building an engaged base of mobile users may also be
complicated by the frequency with which users change or upgrade their mobile
services. In the event users choose mobile devices that do not already include
or support our mobile app or do not install our mobile app when they change or
upgrade their devices, our traffic and user engagement may be harmed.
Our success is also
dependent on the interoperability of our mobile products with a range of mobile
technologies, systems, networks and standards that we do not control, such as
mobile operating systems like Android and iOS. We may not be successful in
developing products that operate effectively with these technologies, systems,
networks and standards or in creating, maintaining and developing relationships
with key participants in the mobile industry, some of which may be our
competitors. Any changes that degrade the functionality of our mobile products,
give preferential treatment to competitive products or prevent us from
delivering advertising could adversely affect mobile usage and monetization. As
new mobile devices and platforms are released, it is difficult to predict the
problems we may encounter in developing products for these alternative devices
and platforms, and we may need to devote significant resources to the creation,
support and maintenance of such products. If we experience difficulties in the
future integrating our mobile app into mobile devices, or we face increased
costs to distribute our mobile app, our user growth and operating results could
be harmed.
In addition, the mobile
market remains a rapidly evolving market with which we have limited experience.
As new devices and platforms are released, users may begin consuming content in
a manner that is more difficult to monetize. Similarly, as mobile advertising
products develop, demand may increase for products that we do not offer or that
may alienate our user base. Although we currently deliver ads on both our mobile
app and mobile website, with 69% of ad clicks delivered on mobile in the three
months ended June 30, 2017, our continued success depends on our efforts to
innovate and introduce enhanced mobile solutions. If our efforts to develop
compelling mobile advertising products are not successful as a result of, for
example, the difficulties detailed above advertisers may stop or reduce their
advertising with us. At the same time, we must balance advertiser demands
against our commitment to prioritizing the quality of user experience over
short-term monetization. For example, we phased out our brand advertising
products in part because demand in the brand advertising market has shifted
toward products disruptive to the consumer experience, such as video ads. If we
are not able to balance these competing considerations successfully, we may not
be able to generate meaningful revenue from our mobile products despite the
expected growth in mobile usage.
*We rely on Internet
search engines and application marketplaces to drive traffic to our platform,
certain providers of which offer products and services that compete directly
with our products. If links to our applications and website are not displayed
prominently, traffic to our platform could decline and our business would be
adversely affected.
Our success depends in part
on our ability to attract users through unpaid Internet search results on search
engines like Google and Bing. The number of users we attract from search engines
to our website (including our mobile website) is due in large part to how and
where information from and links to our website are displayed on search engine
result pages. The display, including rankings, of unpaid search results can be
affected by a number of factors, many of which are not in our direct control,
and may change frequently. For example, a search engine may change its ranking
algorithms, methodologies or design layouts. As a result, links to our platform
may not be prominent enough to drive traffic to our platform, and we may not
know how or otherwise be in a position to influence the results.
For example, Google has
previously made changes to its algorithms and methodologies that may be
contributing to the slowing of our traffic growth rate, particularly in our
international markets where we have less content and more competitors. We
believe this headwind on our ability to achieve prominent display of our content
in international unpaid search results disrupted the network effect we expected
in our international markets based on what we experienced domestically, whereby
increases in content led to increases in traffic. This was a contributing factor
to our decision to reallocate our international sales and marketing resources.
Google also previously announced that the rankings of sites showing certain
types of app install interstitials could be penalized on its mobile search
results pages. While we believe the type of interstitial we currently use is not
being penalized, the parameters of Googles policy may change from time to time,
be poorly defined and be inconsistently interpreted. For example, in January
2017, Google broadened the
categories
of interstitials that may be penalized. As a result, Google may unexpectedly
penalize our app install interstitials, which may cause links to our mobile
website to be featured less prominently in Googles mobile search results page,
and traffic to both our mobile website and mobile app may be harmed as a result.
We cannot predict the long-term impact of these changes.
40
Although traffic to our
mobile app is less reliant on search results than traffic to our website, growth
in mobile device usage may not decrease our overall reliance on search results
if mobile users use our mobile website rather than our mobile app. In fact,
consumers increasing use of mobile devices may exacerbate the risks associated
with how and where our website is displayed in search results because mobile
device screens are smaller than personal computer screens and therefore display
fewer search results.
We also rely on application
marketplaces, such as Apples App Store and Googles Play, to drive downloads of
our applications. In the future, Apple, Google or other marketplace operators
may make changes to their marketplaces that make access to our products more
difficult. For example, our applications may receive unfavorable treatment
compared to the promotion and placement of competing applications, such as the
order in which they appear within marketplaces. Similarly, if problems arise in
our relationships with providers of application marketplaces, our user growth
could be harmed.
In some instances, search
engine companies and application marketplaces may change their displays or
rankings in order to promote their own competing products or services or the
products or services of one or more of our competitors. For example, Google has
integrated its local product offering, Google + Local, with certain of its
products, including search. The resulting promotion of Googles own competing
products in its web search results has negatively impacted the search ranking of
our website. Because Google in particular is the most significant source of
traffic to our website, accounting for more than half of the visits to our
website during the three months ended June 30, 2017, our success depends on our
ability to maintain a prominent presence in search results for queries regarding
local businesses on Google. As a result, Googles promotion of its own competing
products, or similar actions by Google in the future that have the effect of
reducing our prominence or ranking on its search results, could have a
substantial negative effect on our business and results of operations.
If our users fail to
contribute high quality content or their contributions are not valuable to other
users, our traffic and revenue could be negatively affected.
Our success in attracting
users depends on our ability to provide consumers with the information they
seek, which in turn depends on the quantity and quality of the content
contributed by our users. We believe that as the depth and breadth of the
content on our platform grow, our platform will become more widely known and
relevant to broader audiences, thereby attracting new consumers to our service.
However, if we are unable to provide consumers with the information they seek,
they may stop or reduce their use of our platform, and traffic to our website
and on our mobile app will decline. If our user traffic declines, our
advertisers may stop or reduce the amount of advertising on our platform and our
business could be harmed. Our ability to provide consumers with valuable content
may be harmed:
●
|
if our users do not contribute content that
is helpful or reliable;
|
●
|
if our users remove content they previously
submitted;
|
●
|
as a result of user concerns that they may
be harassed or sued by the businesses they review, instances of which have
occurred in the past and may occur again in the future;
and
|
●
|
as users increasingly contribute content
through our mobile platform, because content contributed through mobile
devices tends to be shorter than desktop contributions.
|
Similarly, if robots,
shills or other spam accounts are able to contribute a significant amount of
recommended content, or consumers perceive a significant amount of our
recommended content to be from such accounts, our traffic and revenue could be
negatively affected. Although we do not believe content from these sources has
had a material impact to date, if our automated software recommends a
substantial amount of such content in the future, our ability to provide high
quality content would be harmed and the consumer trust essential to our success
could be undermined.
In addition, if our
platform does not provide current information about local businesses or users do
not perceive reviews on our platform as relevant, our brand and business could
be harmed. For example, we do not phase out or remove dated reviews, and
consumers may view older reviews as less relevant, helpful or reliable than more
recent reviews.
*If we fail to
maintain and expand our base of advertisers, our revenue and our business will
be harmed.
Our ability to grow our
business depends on our ability to maintain and expand our advertiser base. To
do so, we must convince existing and prospective advertisers alike that our
advertising products offer a material benefit and can generate a competitive
return relative to other alternatives. Our ability to do so depends on factors
including:
41
●
|
Acceptance of Online
Advertising
. We believe
that the continued growth and acceptance of our online advertising
products will depend on the perceived effectiveness and acceptance of
online advertising models generally, which is outside of our control. For
example, if ad-blocking programs that affect the delivery of online
advertising gain further visibility or traction, the perceived value of
online advertising, and that of our advertising products in turn, may be
harmed. Many advertisers still have limited experience with online
advertising and, as a result, may continue to devote significant portions
of their advertising budgets to traditional, offline advertising media,
such as newspapers or print yellow pages directories.
|
●
|
Competitiveness of Our
Products
. We must deliver
ads in an effective manner. We may be unable to attract new advertisers if
our products are not compelling or we fail to innovate and introduce
enhanced products meeting advertiser expectations. For example, in their
current form, our ad products may be most attractive to businesses with
higher than average ratings and numbers of reviews. As a result,
businesses with lower ratings and fewer reviews may not purchase our ad
products, or may abandon them if they do not believe our ad products are
effective. At the same time, we must balance advertiser demands against
our commitment to providing a good user experience. For example, we phased
out our brand advertising products in part because demand in the brand
advertising market has shifted toward products disruptive to the consumer
experience. In addition, we must provide accurate analytics and
measurement solutions that demonstrate the value of our advertising
products compared to those of our competitors. Similarly, if the pricing
of our advertising products does not compare favorably to those of our
competitors, advertisers may reduce their advertising with us or choose
not to advertise with us at all. The widespread adoption of any
technologies that make it more difficult for us to deliver ads, such as
ad-blocking programs, could also decrease our value proposition to
businesses and reduce demand for our products.
|
●
|
Traffic Quality
. The success of our advertising program
depends on delivering positive results to our advertising customers.
Low-quality or invalid traffic, such as robots, spiders and the mechanical
automation of clicking, may be detrimental to our relationships with
advertisers and could adversely affect our advertising pricing and
revenue. For example, we recently discovered that, beginning in the third
quarter of 2016, a portion of our desktop traffic has been attributable to
a single robot. While we do not believe the traffic from this robot represents a
material amount of our overall reported traffic or has impacted our
ad delivery, our delay in detecting and removing such traffic may harm our
reputation among advertisers. Similarly, if we fail to detect and prevent
click fraud or other invalid clicks on ads, the affected advertisers may
experience or perceive a reduced return on their investments, which could
lead to dissatisfaction with our products, refusals to pay, refund demands
or withdrawal of future business.
|
●
|
Perception of Our Platform
. Our ability to compete effectively for
advertiser budgets depends on our reputation and perceptions regarding our
platform. For example, we may face challenges expanding our advertiser
base in businesses outside the restaurant and shopping categories if
businesses believe that consumers perceive the utility of our platform to
be limited to finding businesses in these categories. The ratings and
reviews that businesses receive from our users may also affect their
advertising decisions. Favorable ratings and reviews, on the one hand,
could be perceived as obviating the need to advertise. Unfavorable ratings
and reviews, on the other, could discourage businesses from advertising to
an audience that they perceive as hostile or cause them to form a negative
opinion of our products and user base.
|
●
|
Macroeconomic Conditions
. Adverse macroeconomic conditions can have
a negative impact on the demand for advertising, particularly with respect
to online advertising products. We rely heavily on small and medium-sized
businesses, which often have limited advertising budgets and may be
disproportionately affected by economic downturns. In addition, such
business may view online advertising as lower priority than offline
advertising.
|
As is typical in our
industry, our advertisers generally do not have long-term obligations to
purchase our products. Their decisions to renew depend on the degree of
satisfaction with our products as well as a number of factors that are outside
of our control, including their ability to continue their operations and
spending levels. Small and medium-sized local businesses in particular have
historically experienced high failure rates. As a result, we may experience
attrition in our advertisers in the ordinary course of business resulting from
several factors, including losses to competitors, declining advertising budgets,
closures and bankruptcies. The negative impact of attrition on our financial
results may be greater with respect to advertisers who are billed in arrears, as
the vast majority of our advertisers now are, if they fail to make payment on
ads that have already been delivered. In addition, our recent phase out of our
brand advertising products, which had been an additional source of revenue for
us, may make us more susceptible to fluctuations and attrition from small and
medium-sized businesses. To grow our business, we must continually add new
advertisers to replace advertisers who choose not to renew their advertising, or
who go out of business or otherwise fail to fulfill their advertising contracts
with us, which we may not be able to do.
If we fail to further
develop our domestic markets effectively, our revenue and business will be
harmed.
In the fourth quarter of
2016, we wound down our international sales and marketing operations and
reallocated the associated resources primarily to our U.S. and Canadian markets.
As a result, our continued growth depends on our ability to further develop our
U.S. and Canadian communities and operations. However, our communities in many
of the largest markets in the United States and Canada are in a relatively late
stage of development, and further development of smaller markets may not yield
similar results. If we are not able to develop these markets as we expect, or if
we fail to address the needs of those markets, our business will be harmed.
*The proposed sale of Eat24 and partnership with Grubhub may not be consummated as or when planned, or at all, and may not achieve the intended benefits.
The proposed sale of our Eat24 business to Grubhub (the Acquisition) may not be consummated as currently contemplated or at all, or may encounter unanticipated delays or other roadblocks, including delays in obtaining necessary regulatory approvals. Because our planned partnership with Grubhub will only be effective upon the closing of the Acquisition, the partnership may similarly be delayed or fail to take effect. Such a delay or failure to consummate the Acquisition and partnership could cause disruptions to our business and operations, including by introducing uncertainty that harms our ability to attract and retain key Eat24 personnel. In addition, preparing for and executing the proposed Acquisition and partnership will also require significant time, resources and expense, and may divert the attention of our management and employees from other aspects of our business operations. Any delays in the closing of the Acquisition and effectiveness of the partnership may increase the amount of resources we devote to these transactions, which could adversely affect our business, financial condition and results of operations. In the event that we complete the proposed Acquisition and
the partnership becomes effective, there can be no assurance that we will be able to realize the intended benefits of the partnership.
42
*We may acquire other
companies or technologies, which could divert our managements attention, result
in additional dilution to our stockholders and otherwise disrupt our operations
and harm our operating results. We may also be unable to realize the expected
benefits and synergies of any acquisitions.
Our success will depend, in
part, on our ability to expand our product offerings and grow our business in
response to changing technologies, user and advertiser demands and competitive
pressures. In some circumstances, we may determine to do so through the
acquisition of complementary businesses or technologies rather than through
internal development. For example, in February 2017, we acquired Nowait to
obtain waitlist system and seating tool technology and in April 2017, we
acquired Turnstyle to obtain a Wi-Fi based marketing tool for customer retention
and loyalty. We have limited experience as a company in the complex process of
acquiring other businesses and technologies. The pursuit of potential future
acquisitions may divert the attention of management and cause us to incur
expenses in identifying, investigating and pursuing acquisitions, whether or not
they are consummated.
Acquisitions that are
consummated could result in dilutive issuances of equity securities or the
incurrence of debt, which could adversely affect our results of operations. The
incurrence of debt in particular could result in increased fixed obligations or
include covenants or other restrictions that would impede our ability to manage
our operations. In addition, any acquisitions we announce could be viewed
negatively by users, businesses or investors. We may also discover liabilities
or deficiencies associated with the companies or assets we acquire that we did
not identify in advance, which may result in significant unanticipated costs.
For example, in 2015, two lawsuits were filed against us by former Eat24
employees alleging that Eat24 failed to comply with certain labor laws prior to
the acquisition. The effectiveness of our due diligence review and our ability
to evaluate the results of such due diligence are dependent upon the accuracy
and completeness of statements and disclosures made by the companies we acquire
or their representatives, as well as the limited amount of time in which
acquisitions are executed. We may also fail to accurately forecast the financial
impact of an acquisition transaction, including tax and accounting charges.
In order to realize the
expected benefits and synergies of any acquisition that is consummated, we must
meet a number of significant challenges that may create unforeseen operating
difficulties and expenditures, including:
●
|
integrating
operations, strategies, services, sites and technologies of the acquired
company;
|
●
|
managing
the combined business effectively;
|
●
|
retaining and
assimilating the employees of the acquired
company;
|
●
|
retaining existing
customers and strategic partners and minimizing disruption to existing
relationships as a result of any integration of new
personnel;
|
●
|
difficulties in the
assimilation of corporate cultures;
|
●
|
implementing and
retaining uniform standards, controls, procedures, policies and
information systems; and
|
●
|
addressing risks
related to the business of the acquired company that may continue to
impact the business following the acquisition.
|
Any inability to integrate
services, sites and technologies, operations or personnel in an efficient and
timely manner could harm our results of operations. Transition activities are
complex and require significant time and resources, and we may not manage the
process successfully, particularly if we are managing multiple integrations
concurrently, as we currently are with Nowait and Turnstyle. Our ability to
integrate complex acquisitions is unproven, particularly with respect to
companies that have significant operations or that develop products with which
we do not have prior experience. For example, Turnstyle operates a business that
is new to us, and we are in the early stages of developing the structures and
expertise needed to support this business. We plan to invest resources to
support this and any future acquisitions, which will result in ongoing operating
expenses and may divert resources and management attention from other areas of
our business. We cannot assure you that these investments will be successful.
Even if we are able to integrate the operations of any acquired company
successfully, these integrations may not result in the realization of the full
benefits of synergies, cost savings, innovation and operational efficiencies
that may be possible from the combination of the businesses, or we may not
achieve these benefits within a reasonable period of time.
We rely on
third-party service providers and strategic partners for many aspects of our
business, and any failure to maintain these relationships could harm our
business.
We rely on relationships
with various third parties to grow our business, including strategic partners
and technology and content providers. For example, we rely on third parties for
data about local businesses, mapping functionality, payment processing and
administrative software solutions. We also rely on partners for various
transactions available through the Yelp Platform, including Booker for spa and
salon appointments, Locu for menu data and BloomNation for flower deliveries,
among others. Identifying, negotiating and maintaining relationships with third
parties require significant time and resources, as does integrating their data,
services and technologies onto our platform. It is possible that these third
parties may not be able to devote the resources we expect to the relationships.
We may also have competing interests and obligations with respect to our
partners in particular, which may make it difficult to maintain, grow or
maximize the benefit for each partnership. For example, our entry into the
online reservations space with our acquisition of SeatMe, Inc. in 2013 put us in
competition with OpenTable, which led to the end of our partnership in 2015. Our
focus on integrating additional partners to expand the Yelp Platform may
exacerbate this risk.
43
If our relationships with
our partners and providers deteriorate, we could suffer increased costs and
delays in our ability to provide consumers and advertisers with content or
similar services. We have had, and may in the future have, disagreements or
disputes with our partners about our respective contractual obligations, which
could result in legal proceedings or negatively affect our brand and reputation.
In addition, we exercise limited control over our third-party partners and
vendors, which makes us vulnerable to any errors, interruptions or delays in
their operations. If these third parties experience any service disruptions,
financial distress or other business disruption, or difficulties meeting our
requirements or standards, it could make it difficult for us to operate some
aspects of our business. For example, we rely on a single supplier to process
payments of all transactions made on the Yelp Platform and for purchases of Yelp
Deals and Gift Certificates. Any disruption or problems with this supplier or
its services could have an adverse effect on our reputation, results of
operations and financial results. Similarly, upon expiration or termination of
any of our agreements with third-party providers, we may not be able to replace
the services provided to us in a timely manner or on terms that are favorable to
us, if at all, and a transition from one partner or provider to another could
subject us to operational delays and inefficiencies.
We face competition
for both local business directory traffic and advertiser spending, and expect
competition to increase in the future.
The market for information
regarding local businesses and advertising is intensely competitive and rapidly
changing. With the emergence of new technologies and market entrants,
competition is likely to intensify in the future. We compete for consumer
traffic with traditional, offline local business guides and directories,
Internet search engines, such as Google and Bing, review and social media
websites and various other online service providers. These competitors may
include regional review websites that may have strong positions in particular
countries. We also compete with these companies for the content of contributors,
and may experience decreases in both traffic and user engagement if our
competitors offer more compelling environments.
Although advertisers are
allocating an increasing amount of their overall marketing budgets to online
advertising, such spending lags behind growth in Internet and mobile usage
generally, making the market for online advertising intensely competitive. We
compete for a share of local businesses overall advertising budgets with
traditional, offline media companies and service providers, as well as Internet
marketing providers. Many of these companies have established marketing
relationships with local businesses, and certain of our online competitors have
substantial proprietary advertising inventory and web traffic that may provide a
significant competitive advantage.
Certain competitors could
use strong or dominant positions in one or more markets to gain competitive
advantage against us in areas in which we operate, including by: integrating
review platforms or features into products they control, such as search engines,
web browsers or mobile device operating systems; making acquisitions; changing
their unpaid search result rankings to promote their own products; refusing to
enter into or renew licenses on which we depend; limiting or denying our access
to advertising measurement or delivery systems; limiting our ability to target
or measure the effectiveness of ads; or making access to our platform more
difficult. This risk may be exacerbated by the trend in recent years toward
consolidation among online media companies, potentially allowing our larger
competitors to offer bundled or integrated products that feature alternatives to
our platform.
Our competitors may also
enjoy competitive advantages, such as greater name recognition, longer operating
histories, substantially greater market share, large existing user bases and
substantially greater financial, technical and other resources. Traditional
television and print media companies, for example, have large established
audiences and more traditional and widely accepted advertising products. These
companies may use these advantages to offer products similar to ours at a lower
price, develop different products to compete with our current solutions and
respond more quickly and effectively than we do to new or changing
opportunities, technologies, standards or client requirements. In particular,
major Internet companies, such as Google, Facebook, Amazon and Microsoft, may be
more successful than us in developing and marketing online advertising offerings
directly to local businesses, and may leverage their relationships based on
other products or services to gain additional share of advertising budgets.
To compete effectively, we
must continue to invest significant resources in product development to enhance
user experience and engagement, as well as sales and marketing to expand our
base of advertisers. However, there can be no assurance that we will be able to
compete successfully for users and advertisers against existing or new
competitors, and failure to do so could result in loss of existing users,
reduced revenue, increased marketing expenses or diminished brand strength, any
of which could harm our business.
44
*Our business depends
on a strong brand, and any failure to maintain, protect and enhance our brand
would hurt our ability to retain and expand our base of users and advertisers,
as well as our ability to increase the frequency with which they use our
products.
We have developed a strong
brand that we believe has contributed significantly to the success of our
business. Maintaining, protecting and enhancing the Yelp brand are critical to
expanding our base of users and advertisers and increasing the frequency with
which they use our solutions. Our ability to do so will depend largely on our
ability to maintain consumer trust in our products and in the quality and
integrity of the user content and other information found on our platform, which
we may not do successfully. We dedicate significant resources to these goals,
primarily through our automated recommendation software, sting operations
targeting the buying and selling of reviews, our consumer alerts program,
coordination with consumer protection agencies and law enforcement, and, in
certain egregious cases, taking legal action against business we believe to be
engaged in deceptive activities. We also endeavor to remove content from our
platform that violates our terms of service.
Despite these efforts, we
cannot guarantee that each of the 94.7 million reviews on our platform that had
been recommended and that had not been removed as of June 30, 2017 is useful or
reliable, or that consumers will trust the integrity of our content. For
example, if our recommendation software does not recommend helpful content or
recommends unhelpful content, consumers and businesses alike may stop or reduce
their use of our platform and products. Some consumers and businesses have
alternately expressed concern that our technology either recommends too many
reviews, thereby recommending some reviews that may not be legitimate, or too
few reviews, thereby not recommending some reviews that may be legitimate. If
consumers do not believe our recommended reviews to be useful and reliable, they
may seek other services to obtain the information for which they are looking,
and may not return to our platform as often in the future, or at all. This would
negatively impact our ability to retain and attract users and advertisers and
the frequency with which they use our platform.
Consumers may also believe
that the reviews, photos and other user content contributed by our Community
Managers or other employees are influenced by our advertising relationships or
are otherwise biased. Although we take steps to prevent this from occurring by,
for example, identifying Community Managers as Yelp employees on their account
profile pages and explaining their role on our platform, the designation does
not appear on the page for each review contributed by the Community Manager and
we may not be successful in our efforts to maintain consumer trust. Similarly,
the actions of our partners may affect our brand if users do not have a positive
experience on the Yelp Platform. If others misuse our brand or pass themselves
off as being endorsed or affiliated with us, it could harm our reputation and
our business could suffer. For example, we have encountered instances of
reputation management companies falsely representing themselves as being
affiliated with us when soliciting customers; this practice could be
contributing to rumors that business owners can pay to manipulate reviews,
rankings and ratings. Our website and mobile app also serve as a platform for
expression by our users, and third parties or the public at large may also
attribute the political or other sentiments expressed by users on our platform
to us, which could harm our reputation.
In addition, negative
publicity about our company, including our technology, sales practices,
personnel, customer service, litigation, strategic plans or political activities
could diminish confidence in our brand and the use of our products. Certain
media outlets have previously reported allegations that we manipulate our
reviews, rankings and ratings in favor of our advertisers and against
non-advertisers. In order to demonstrate that our automated recommendation
software applies in a nondiscriminatory manner to both advertisers and
non-advertisers, we allow users to access reviews that are both recommended and
not recommended by our software. We have also allowed businesses to comment
publicly on reviews so that they can provide a response. Nevertheless, our
reputation and brand, the traffic to our website and mobile app and our business
may suffer if negative publicity about our company persists or if users
otherwise perceive that our content is manipulated or biased. Allegations and
complaints regarding our business practices, and any resulting negative
publicity, may also result in increased regulatory scrutiny of our company. In
addition to requiring management time and attention, any regulatory inquiry or
investigation could itself result in further negative publicity regardless of
its merit or outcome.
Maintaining and enhancing
our brand may also require us to make substantial investments, and these
investments may not be successful. For example, our trademarks are an important
element of our brand. We have faced in the past, and may face in the future,
oppositions from third parties to our applications to register key trademarks.
If we are unsuccessful in defending against these oppositions, our trademark
applications may be denied. Whether or not our trademark applications are
denied, third parties may claim that our trademarks infringe their rights. As a
result, we could be forced to pay significant settlement costs or cease the use
of these trademarks and associated elements of our brand. Doing so could harm
our brand recognition and adversely affect our business. If we fail to maintain
and enhance our brand successfully, or if we incur excessive expenses in this
effort, our business and financial results may be adversely affected.
*If we fail to manage
our growth effectively, our brand, results of operations and business could be
harmed.
We have experienced rapid
growth in our headcount and operations, including through our acquisitions of
other businesses, such as Nowait and Turnstyle in February 2017 and April 2017,
respectively, which places substantial demands on management and our operational
infrastructure. Most of our employees have been with us for fewer than two
years; to manage the expected growth of our operations, we will need to continue
to increase the productivity of our current employees and hire, train and manage
new employees. In particular, we intend to continue to make substantial
investments in our engineering organization as well as our U.S. and Canadian
sales, marketing and community management organizations. As a result, we must
effectively integrate, develop and motivate a large number of new employees,
including employees from any acquired businesses, while maintaining the
beneficial aspects of our company culture.
45
As our business matures, we
make periodic changes and adjustments to our organization in response to various
internal and external considerations, including market opportunities, the
competitive landscape, new and enhanced products, acquisitions, sales
performance, increases in headcount and cost levels. In some instances, these
changes have resulted in a temporary lack of focus and reduced productivity,
which may occur again in connection with any future changes to our organization
and may negatively affect our results of operations. Similarly, any significant
changes to the way we structure compensation of our sales organization may be
disruptive and may affect our ability to generate revenue.
To manage our growth, we
may need to improve our operational, financial and management systems and
processes, which may require significant capital expenditures and allocation of
valuable management and employee resources, as well as subject us to the risk of
over-expanding our operating infrastructure. For example, it can be difficult to
train thousands of sales employees across multiple offices according to the same
business standards, practices and laws, and we have been the subject of lawsuits
alleging that we have failed to do so. For example, we are the subject of a
putative class action lawsuit alleging that our sales force does not properly
disclose that calls may be monitored or recorded for quality assurance. However,
if we fail to scale our operations successfully and increase productivity, the
quality of our platform and efficiency of our operations could suffer, which
could harm our brand, results of operations and business.
We make the consumer
experience our highest priority. Our dedication to making decisions based
primarily on the best interests of consumers may cause us to forgo short-term
gains and advertising revenue.
We base many of our
decisions on the best interests of the consumers who use our platform. In the
past, we have forgone, and we may in the future forgo, certain expansion or
revenue opportunities that we do not believe are in the best interests of
consumers, even if such decisions negatively impact our results of operations in
the short term. For example, we phased out our brand advertising products in
part because demand in the brand advertising market has shifted toward products
disruptive to the consumer experience, such as video ads. Our approach of
putting consumers first may negatively impact our relationship with existing or
prospective advertisers. For example, unless we believe that a review violates
our terms of service, such as reviews that contain hate speech or bigotry, we
will allow the review to remain on our platform, even if the business disputes
its accuracy. Certain advertisers may therefore perceive us as an impediment to
their success as a result of negative reviews and ratings. This practice could
result in a loss of advertisers, which in turn could harm our results of
operations. However, we believe that this approach has been essential to our
success in attracting users and increasing the frequency with which they use our
platform. As a result, we believe this approach has served the long-term
interests of our company and our stockholders and will continue to do so in the
future.
We rely on the
performance of highly skilled personnel, and if we are unable to attract, retain
and motivate well-qualified employees, our business could be
harmed.
We believe our success has
depended, and continues to depend, on the efforts and talents of our employees,
including our senior management team, software engineers, marketing
professionals and advertising sales staff. All of our officers and other U.S.
employees are at-will employees, which means they may terminate their employment
relationship with us at any time, and their knowledge of our business and
industry would be extremely difficult to replace. Any changes in our senior
management team in particular may be disruptive to our business. For example, in
2016 we appointed a new Chief Financial Officer, and our long-time Chief
Operating Officer stepped down from his position. If our senior management team,
including our Chief Financial Officer or any other new hires that we may make,
fails to work together effectively or execute our plans and strategies on a
timely basis, our business could be harmed.
Our future also depends on
our continuing ability to attract, develop, motivate and retain highly qualified
and skilled employees. Identifying, recruiting, training and integrating new
hires will require significant time, expense and attention, and qualified
individuals are in high demand; as a result, we may incur significant costs to
attract them before we can validate their productivity. Volatility in the price
of our common stock may make it more difficult or costly in the future to use
equity compensation to motivate, incentivize and retain our employees. If we
fail to manage our hiring needs effectively, our efficiency and ability to meet
our forecasts, as well as employee morale, productivity and retention, could
suffer, and our business and operating results could be adversely affected.
Risks Related to Our
Technology
Our business is
dependent on the uninterrupted and proper operation of our technology and
network infrastructure. Any significant disruption in our service could damage
our reputation, result in a potential loss of users and engagement and adversely
affect our results of operations.
It is important to our
success that users in all geographies be able to access our platform at all
times. We have previously experienced, and may experience in the future, service
disruptions, outages and other performance problems. Such performance problems
may be due to a variety of factors, including infrastructure changes, human or
software errors and capacity constraints due to an overwhelming number of users
accessing our platform simultaneously. Our products and services are highly
technical and complex, and may contain errors or vulnerabilities that could
result in unanticipated downtime for our platform and harm to our reputation and
business. Users may also use our products in unanticipated ways that may cause a
disruption in service for other users attempting to access our platform. We may
encounter such difficulties more frequently as we acquire companies and
incorporate their technologies into our service. It may also become increasingly
difficult to maintain and improve the availability of our platform, especially
during peak usage times, as our products become more complex and our user
traffic increases.
46
In some instances, we may
not be able to identify the cause or causes of these performance problems within
an acceptable period of time. If our platform is unavailable when users attempt
to access it or it does not load as quickly as they expect, users may seek other
services to obtain the information for which they are looking, and may not
return to our platform as often in the future, or at all. This would negatively
impact our ability to attract users and advertisers and increase the frequency
with which they use our platform. We expect to continue to make significant
investments to maintain and improve the availability of our platform and to
enable rapid releases of new features and products. To the extent that we do not
effectively address capacity constraints, upgrade our systems as needed and
continually develop our technology and network architecture to accommodate
actual and anticipated changes in technology, our business and operating results
may be harmed.
Our systems are also
vulnerable to damage or interruption from catastrophic occurrences such as
earthquakes, fires, floods, power losses, telecommunications failures, terrorist
attacks and similar events. Our U.S. corporate offices and one of the facilities
we lease to house our computer and telecommunications equipment are located in
the San Francisco Bay Area, a region known for seismic activity. In addition,
acts of terrorism, which may be targeted at metropolitan areas that have higher
population densities than rural areas, could cause disruptions in our or our
advertisers businesses or the economy as a whole. We may not have sufficient
protection or recovery plans in certain circumstances, such as natural disasters
affecting the San Francisco Bay Area, and our business interruption insurance
may be insufficient to compensate us for losses that may occur. Our disaster
recovery program contemplates transitioning our platform and data to a backup
center in the event of a catastrophe. Although this program is functional, if
our primary data center shuts down, there will be a period of time that our
services will remain shut down while the transition to the back-up data center
takes place. During this time, our platform may be unavailable in whole or in
part to our users.
If our security
measures are compromised, or if our platform is subject to attacks that degrade
or deny the ability of users to access our content, users may curtail or stop
use of our platform.
Our platform involves the
storage and transmission of user and business information, some of which may be
private, and security breaches could expose us to a risk of loss of this
information, which could result in potential liability and litigation. Computer
viruses, break-ins, malware, phishing attacks, attempts to overload servers with
denial-of-service or other attacks and similar disruptions from unauthorized use
of computer systems have become more prevalent in our industry, have occurred on
our systems in the past and are expected to occur periodically on our systems in
the future. We may be a particularly compelling target for such attacks as a
result of our brand recognition. User and business owner accounts and listing
pages could be hacked, hijacked, altered or otherwise claimed or controlled by
unauthorized persons. For example, we enable businesses to create free online
accounts and claim the business listing pages for each of their business
locations. Although we take steps to confirm that the person setting up the
account is affiliated with the business, our verification systems could fail to
confirm that such person is an authorized representative of the business, or
mistakenly allow an unauthorized person to claim the businesss listing page. In
addition, we face risks associated with security breaches affecting our
third-party partners and service providers. A security breach at any such third
party could be perceived by consumers as a security breach of our systems and
result in negative publicity, damage to our reputation and expose us to other
losses.
Although none of the
disruptions we have experienced to date have had a material effect on our
business, any future disruptions could lead to interruptions, delays or website
shutdowns, causing loss of critical data or the unauthorized disclosure or use
of personally identifiable or other confidential information. Even if we
experience no significant shutdown or no critical data is lost, obtained or
misused in connection with an attack, the occurrence of such attack or the
perception that we are vulnerable to such attacks may harm our reputation, our
ability to retain existing users and our ability to attract new users. Although
we have developed systems and processes that are designed to protect our data
and prevent data loss and other security breaches, the techniques used to obtain
unauthorized access, disable or degrade service or sabotage systems change
frequently, often are not recognized until launched against a target or long
after, and may originate from less regulated and more remote areas around the
world. As a result, these preventative measures may not be adequate and we
cannot assure you that they will provide absolute security.
Any or all of these issues
could negatively impact our ability to attract new users, deter current users
from returning to our platform, cause existing or potential advertisers to
cancel their contracts or subject us to third-party lawsuits or other
liabilities. For example, we work with a third-party vendor to process credit
card payments by users and businesses, and are subject to payment card
association operating rules. Compliance with applicable operating rules will not
necessarily prevent illegal or improper use of our payment systems, or the
theft, loss or misuse of payment information, however. If our security measures
fail to prevent fraudulent credit card transactions and protect payment
information adequately as a result of employee error, malfeasance or otherwise,
or we fail to comply with the applicable operating rules, we could be liable to
the users and businesses for their losses, as well as the vendor under our
agreement with it, and be subject to fines and higher transaction fees. In
addition, government authorities could also initiate legal or regulatory actions
against us in connection with such incidents, which could cause us to incur
significant expense and liability or result in orders or consent decrees forcing
us to modify our business practices.
47
Some of our products
contain open source software, which may pose particular risks to our proprietary
software and solutions.
We use open source software
in our products and will use open source software in the future. From time to
time, we may face claims from third parties claiming ownership of, or demanding
release of, the open source software or derivative works that we developed using
such software (which could include our proprietary source code), or otherwise
seeking to enforce the terms of the applicable open source license. These claims
could result in litigation and could require us to purchase a costly license or
cease offering the implicated solutions unless and until we can re-engineer them
to avoid infringement. This re-engineering process could require significant
additional research and development resources. In addition to risks related to
license requirements, use of certain open source software can lead to greater
risks than use of third-party commercial software because open source licensors
generally do not provide warranties or controls on the origin of the software.
Any of these risks could be difficult to eliminate or manage, and, if not
addressed, could have a negative effect on our business and operating results.
Failure to protect or
enforce our intellectual property rights could harm our business and results of
operations.
We regard the protection of
our trade secrets, copyrights, trademarks, patent rights and domain names as
critical to our success. In particular, we must maintain, protect and enhance
the Yelp brand. We pursue the registration of our domain names, trademarks and
service marks in the United States and in certain jurisdictions abroad. While we
are pursuing a number of patent applications, we currently have only limited
patent protection for our core business, which may make it more difficult to
assert certain of our intellectual property rights. We strive to protect our
intellectual property rights by relying on federal, state and common law rights,
as well as contractual restrictions. We typically enter into confidentiality and
invention assignment agreements with our employees and contractors, as well as
confidentiality agreements with parties with whom we conduct business in order
to limit access to, and disclosure and use of, our proprietary information.
However, these contractual arrangements and the other steps we have taken to
protect our intellectual property may not prevent the misappropriation or
disclosure of our proprietary information or deter independent development of
similar technologies by others.
Effective trade secret,
copyright, trademark, patent and domain name protection is expensive to develop
and maintain, both in terms of initial and ongoing registration requirements and
expenses and the costs of defending our rights. Seeking protection for our
intellectual property, including trademarks and domain names, is an expensive
process and may not be successful, and we may not do so in every location in
which we operate. Similarly, the process of obtaining patent protection is
expensive and time consuming, and we may not be able to prosecute all necessary
or desirable patent applications at a reasonable cost or in a timely manner.
Even if issued, there can be no assurance that these patents will adequately
protect our intellectual property, as the legal standards relating to the
validity, enforceability and scope of protection of patent and other
intellectual property rights are uncertain. Litigation may become necessary to
enforce our patent or other intellectual property rights, protect our trade
secrets or determine the validity and scope of proprietary rights claimed by
others. For example, we may incur significant costs in enforcing our trademarks
against those who attempt to imitate our Yelp brand. Any litigation of this
nature, regardless of outcome or merit, could result in substantial costs and
diversion of management and technical resources, any of which could adversely
affect our business and operating results.
We may be unable to
continue to use the domain names that we use in our business, or prevent third
parties from acquiring and using domain names that infringe on, are similar to,
or otherwise decrease the value of our brand or our trademarks or service
marks.
We have registered domain
names for the websites that we use in our business, such as Yelp.com. If we lose
the ability to use a domain name, whether due to trademark claims, failure to
renew the applicable registration or any other cause, we may be forced to market
our products under a new domain name, which could cause us substantial harm or
cause us to incur significant expense in order to purchase rights to the domain
name in question. In addition, our competitors and others could attempt to
capitalize on our brand recognition by using domain names similar to ours.
Domain names similar to ours have been registered by others in the United States
and elsewhere. We may be unable to prevent third parties from acquiring and
using domain names that infringe on, are similar to or otherwise decrease the
value of our brand or our trademarks or service marks. Protecting and enforcing
our rights in our domain names may require litigation, which could result in
substantial costs and diversion of managements attention.
Risks Related to Our
Financial Statements and Tax Matters
*We have incurred
significant operating losses in the past, and we may not be able to generate
sufficient revenue to maintain profitability. Our recent growth rate will likely
not be sustainable, and a failure to maintain an adequate growth rate will
adversely affect our business and results of operations.
Since our inception, we
have incurred significant operating losses and, as of June 30, 2017, we had an
accumulated deficit of approximately $67.4 million. Although our revenues have
grown rapidly in the last several years, increasing from $12.1 million in 2008
to $713.1 million in 2016, our revenue growth rate has declined in recent
periods as a result of a variety of factors, including the maturation of our
business and the gradual decline in the number of major geographic markets
within the United States and Canada to which we have not already expanded. While
our decision to focus our sales and marketing resources primarily on the United
States and Canada may result in some cost savings, they also limit the markets
from which we generate revenue and our ability to expand internationally in the
future. We expect that the more immediate loss of revenue will be immaterial,
but we cannot predict the impact of these plans on our long-term international
prospects or the impact that a smaller international footprint may have on our
brand and reputation.
48
You should not rely on the revenue growth of any prior
quarterly or annual period, or the net income we realize from time to time, as an
indication of our future performance. Historically, our costs have increased
each year and we expect our costs to increase in future periods as we continue
to expend substantial financial resources on:
●
|
sales and
marketing;
|
●
|
our technology
infrastructure;
|
●
|
product and feature
development;
|
●
|
market development
efforts;
|
●
|
strategic
opportunities, including commercial relationships and acquisitions;
|
●
|
our stock repurchase program; and
|
●
|
general
administration, including legal and accounting expenses related to being a
public company.
|
These investments may not
result in increased revenue or growth in our business. Our costs may also
increase as we hire additional employees, particularly as a result of the
significant competition that we face to attract and retain technical talent. Our
expenses may grow faster than our revenue and may be greater than we anticipate
in a particular period or over time. If we are unable to maintain adequate
revenue growth and to manage our expenses, we may continue to incur significant
losses in the future and may not be able to maintain profitability.
We have a limited
operating history in an evolving industry, which makes it difficult to evaluate
our future prospects and may increase the risk that we will not be
successful.
We have a limited operating
history in an evolving industry that may not develop as expected, if at all. As
a result, our historical operating results may not be indicative of our future
operating results, making it difficult to assess our future prospects. You
should consider our business and prospects in light of the risks and
difficulties we may encounter in this rapidly evolving industry, which we may
not be able to address successfully. These risks and difficulties include our
ability to, among other things:
●
|
increase the number
of users of our website and mobile app and the number of reviews and other
content on our platform;
|
●
|
attract and retain
new advertising clients, many of which may have limited or no online
advertising experience;
|
●
|
forecast revenue and
adjusted EBITDA accurately, which is made more difficult by the large
percentage of our revenue derived from performance-based advertising, as
well as appropriately estimate and plan our
expenses;
|
●
|
continue to earn and
preserve a reputation for providing meaningful and reliable reviews of
local businesses;
|
●
|
effectively monetize
our mobile products as usage continues to migrate toward mobile devices;
|
●
|
successfully compete
with existing and future providers of other forms of offline and online
advertising;
|
●
|
successfully compete
with other companies that are currently in, or may in the future enter,
the business of providing information regarding local
businesses;
|
●
|
successfully manage
our growth;
|
●
|
successfully develop
and deploy new features and products;
|
●
|
manage and integrate
successfully any acquisitions of businesses, solutions or technologies,
such as Nowait and Turnstyle;
|
●
|
avoid interruptions
or disruptions in our service or slower than expected load
times;
|
●
|
develop a scalable,
high-performance technology infrastructure that can efficiently and
reliably handle increased usage, as well as the deployment of new features
and products;
|
●
|
hire, integrate and
retain talented sales and other personnel;
|
●
|
effectively manage
rapid growth in our sales force, other personnel and operations; and
|
●
|
effectively identify,
engage and manage third-party partners and service providers.
|
49
If the demand for
information regarding local businesses does not develop as we expect, or if we
fail to address the needs of this demand, our business will be harmed. We may
not be able to address successfully these risks and difficulties or others,
including those described elsewhere in these risk factors. Failure to address
these risks and difficulties adequately could harm our business and cause our
operating results to suffer.
We expect a number of
factors to cause our operating results to fluctuate on a quarterly and annual
basis, which may make it difficult to predict our future
performance.
Our operating results could
vary significantly from period to period as a result of a variety of factors,
many of which may be outside of our control. This volatility increases the
difficulty in predicting our future performance and means comparing our
operating results on a period-to-period basis may not be meaningful. In addition
to the other risk factors discussed in this section, factors that may contribute
to the volatility of our operating results include:
●
|
changes in
the products we offer, such as our phase out of brand advertising
products;
|
●
|
changes in
our pricing policies and terms of contracts, whether initiated by us or as
a result of competition;
|
●
|
changes in
the markets in which we operate, such as the wind down of our
international sales and marketing operations to focus on our core markets
of the United States and Canada;
|
●
|
cyclicality
and seasonality, which may become more pronounced as our growth rate
slows;
|
●
|
the effects
of changes in search engine placement and
prominence;
|
●
|
the
adoption of any laws or regulations that adversely affect the growth,
popularity or use of the Internet, such as laws impacting Internet
neutrality;
|
●
|
the success
of our sales and marketing efforts;
|
●
|
costs
associated with defending intellectual property infringement and other
claims and related judgments or settlements;
|
●
|
interruptions in service and any related impact on our reputation;
|
●
|
changes in
advertiser budgets or the market acceptance of online advertising
solutions;
|
●
|
changes in
consumer behavior with respect to local businesses;
|
●
|
changes in
our tax rates or exposure to additional tax
liabilities;
|
●
|
the impact
of macroeconomic conditions, including the resulting effect on consumer
spending at local businesses and the level of advertising spending by
local businesses; and
|
●
|
the effects
of natural or man-made catastrophic
events.
|
*Our reported
financial results may be adversely affected by new accounting pronouncements or
changes in existing accounting standards and practices.
We prepare our financial
statements in conformity with accounting principles generally accepted in the
U.S. (GAAP). These accounting principles are subject to interpretation or
changes by the Financial Accounting Standards Board (FASB) and the SEC. New
accounting pronouncements and varying interpretations of accounting standards
and practices have occurred in the past and are expected to occur in the future.
New accounting pronouncements or a change in the interpretation of existing
accounting standards or practices may have a significant effect on our reported
financial results. In May 2014, FASB issued Accounting Standards Update 2014-09,
Revenue from Contracts with Customers, which will supersede existing revenue
guidance under GAAP and which we will adopt on January 1, 2018. The new guidance
requires companies to recognize revenue when they transfer promised goods or
services to customers, in an amount that reflects the consideration that the
company expects to be entitled to in exchange for such goods or services. We are
still in the process of evaluating the impact of the new revenue standard. Refer
to Note 1 of our condensed consolidated financial statements for additional
information on the new guidance and its potential impact on us.
Because we recognize
most of the revenue from our advertising products over the term of an agreement,
a significant downturn in our business may not be immediately reflected in our
results of operations.
We recognize revenue from
sales of our advertising products over the terms of the applicable agreements,
which are generally three, six or 12 months. As a result, a significant portion
of the revenue we report in each quarter is generated from agreements entered
into during previous quarters. Consequently, a decline in new or renewed
agreements in any one quarter may not significantly impact our revenue in that
quarter but will negatively affect our revenue in future quarters. In addition,
we may be unable to adjust our fixed costs in response to reduced revenue.
Accordingly, the effect of significant declines in advertising sales may not be
reflected in our short-term results of operations.
50
If our goodwill or
intangible assets become impaired, we may be required to record a significant
charge to our income statement.
We have recorded a
significant amount of goodwill related to our acquisitions to date, and a
significant portion of the purchase price of any companies we acquire in the
future may be allocated to acquired goodwill and other intangible assets. Under
GAAP, we review our intangible assets for impairment when events or changes in
circumstances indicate the carrying value of our goodwill and other intangible
assets may not be recoverable. Goodwill is required to be tested for impairment
at least annually. Factors that may be considered include declines in our stock
price, market capitalization and future cash flow projections. If our
acquisitions do not yield expected returns, our stock price declines or any
other adverse change in market conditions occurs, a change to the estimation of
fair value could result. Any such change could result in an impairment charge to
our goodwill and intangible assets, particularly if such change impacts any of
our critical assumptions or estimates, and may have a negative impact on our
financial position and operating results.
We may require
additional capital to support business growth, and such capital might not be
available on acceptable terms, if at all.
We intend to continue to
invest in our business and may require or otherwise seek additional funds to
respond to business challenges, including the need to develop new features and
products, enhance our existing services, improve our operating infrastructure
and acquire complementary businesses and technologies. In addition, on July 31, 2017, our board of directors authorized the repurchase of up to to $200 million of our common stock. As a result, we may need
to engage in equity or debt financings to secure additional funds. If we raise
additional funds through future issuances of equity or convertible debt
securities, our existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences and privileges
superior to those of our common stock. Any future debt financing we secure could
involve 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. We may not be able to obtain additional financing on
terms favorable to us, if at all. If we are unable to obtain adequate financing
or financing on terms satisfactory to us when we require it, our ability to
continue to support our business growth and respond to business challenges could
be significantly impaired, and our business may be harmed.
We may have exposure
to greater than anticipated tax liabilities.
Our income tax obligations
are based in part on our corporate operating structure and intercompany
arrangements, including the manner in which we develop, value and use our
intellectual property and the valuations of our intercompany transactions. For
example, our corporate structure includes legal entities located in
jurisdictions with income tax rates lower than the U.S. statutory tax rate. Our
intercompany arrangements allocate income to such entities in accordance with
arms length principles and commensurate with functions performed, risks assumed
and ownership of valuable corporate assets. We believe that income taxed in
certain foreign jurisdictions at a lower rate relative to the U.S. statutory
rate will have a beneficial impact on our worldwide effective tax rate.
However, significant
judgment is required in evaluating our tax positions and determining our
provision for income taxes. During the ordinary course of business, there are
many transactions and calculations for which the ultimate tax determination is
uncertain. For example, our effective tax rates could be adversely affected by
earnings being lower than anticipated in countries where we have lower statutory
rates and higher than anticipated in countries where we have higher statutory
rates, by changes in foreign currency exchange rates or by changes in the
relevant tax, accounting and other laws, regulations, principles and
interpretations.
In addition, the
application of the tax laws of various jurisdictions, including the United
States, to our international business activities is subject to interpretation
and depends on our ability to operate our business in a manner consistent with
our corporate structure and intercompany arrangements. The taxing authorities of
jurisdictions in which we operate may challenge our methodologies for valuing
developed technology or intercompany arrangements, including our transfer
pricing, or determine that the manner in which we operate our business does not
achieve the intended tax consequences, which could increase our worldwide
effective tax rate and harm our financial position and results of operations. As
we operate in numerous taxing jurisdictions, the application of tax laws can
also be subject to diverging and sometimes conflicting interpretations by tax
authorities of these jurisdictions. It is not uncommon for taxing authorities in
different countries to have conflicting views, for instance, with respect to,
among other things, the manner in which the arms-length standard is applied for
transfer pricing purposes, or with respect to the valuation of intellectual
property.
*Changes in tax laws
or tax rulings, or the examination of our tax positions, could materially affect
our financial position and results of operations.
Tax laws are dynamic and
subject to change as new laws are passed and new interpretations of the law are
issued or applied. Our current practices, existing corporate structure and
intercompany arrangements have been implemented in a manner we believe is in
compliance with current prevailing tax laws. However, the tax benefits that we
intend to eventually derive could be undermined due to changing tax laws or new
interpretations of existing laws that are inconsistent with previous
interpretations or positions taken by taxing authorities on which we have
relied. In particular, the current U.S. administration and key members of
Congress have made public statements indicating that tax reform is a priority,
resulting in uncertainty not only with respect to the future corporate tax rate,
but also the U.S. tax consequences of income derived from income related to
intellectual property earned overseas in low tax jurisdictions. Certain changes
to U.S. tax laws, including limitations on the ability to defer U.S. taxation on
earnings outside of the United States until those earnings are repatriated to
the United States, as well as changes to U.S. tax laws that may be enacted in
the future, could affect the tax treatment of our foreign earnings. In addition,
the taxing authorities in the United States and other jurisdictions where we do
business regularly examine our income and other tax returns. The ultimate
outcome of these examinations cannot be predicted with certainty. Should the IRS
or other taxing authorities assess additional taxes as a result of examinations
or changes to applicable law or interpretations of the law, we may be required
to record charges to our operations, which could harm our business, operating
results and financial condition.
51
Our business and
results of operations may be harmed if we are deemed responsible for the
collection and remittance of state sales taxes for Eat24s
restaurants.
If we are deemed an agent
for the restaurants in our Eat24 network under state tax law, we may be deemed
responsible for collecting and remitting sales taxes directly to certain states.
It is possible that one or more states could seek to impose sales, use or other
tax collection obligations on us with regard to such food sales. These taxes may
be applicable to past sales. A successful assertion that we should be collecting
additional sales, use or other taxes or remitting such taxes directly to states
could result in substantial tax liabilities for past sales and additional
administrative expenses, which would harm our business and results of
operations. In addition, we rely on the restaurants in our Eat24 network to
provide us with the correct sales tax rates for each individual order. If such
information proves incorrect, we may be liable for the under or over collection
of sales tax from Eat24 customers.
*We rely on data from
both internal tools and third parties to calculate certain of our performance
metrics. Real or perceived inaccuracies in such metrics may harm our reputation
and negatively affect our business.
We track certain
performance metrics including the number of unique devices accessing our
mobile app in a given period, page views and calls and clicks for directions and
map views with internal tools, which are not independently verified by any
third party. Our internal tools have a number of limitations and our
methodologies for tracking these metrics may change over time, which could
result in unexpected changes to our metrics, including key metrics that we
report. For example, our metrics may be affected by mobile applications that
automatically contact our servers for regular updates with no discernible user
action involved; this activity can cause our system to count the device
associated with the app as an app unique device in a given period. If the
internal tools we use to track these metrics over- or under-count performance or
contain algorithm or other technical errors, the data we report may not be
accurate. In addition, limitations or errors with respect to how we measure data
may affect our understanding of certain details of our business, which could
affect our longer-term strategies.
In addition, certain of our
key metrics the number of our desktop unique visitors and mobile website
unique visitors are calculated relying on data from third parties. While these
numbers are based on what we believe to be reasonable calculations for the
applicable periods of measurement, our third-party providers periodically
encounter difficulties in providing accurate data for such metrics as a result
of a variety of factors, including human and software errors. We expect these
challenges to continue to occur, and potentially to increase as our traffic
grows. For example, we recently discovered that a portion of our
desktop traffic, as measured by Google Analytics, since the third quarter of
2016 has been attributable to a single robot. Because the traffic from this
robot does not represent valid consumer traffic, we determined that our reported
desktop unique visitors metric for the third quarter of 2016, fourth quarter of
2016 and first quarter of 2017 were overstated, and have adjusted them to
provide greater accuracy and transparency. Our reported number of desktop unique
visitors for the second quarter of 2017 also reflects an adjustment to the
number provided by Google Analytics to account for this robot, and we expect to
continue to make similar adjustments in the future if we determine that our
traffic metrics are materially impacted by robot or other invalid traffic.
There are also inherent
challenges in measuring usage across our large user base. For example, because
these metrics are based on users with unique cookies, an individual who accesses
our website from multiple devices with different cookies may be counted as
multiple unique visitors, and multiple individuals who access our website from a
shared device with a single cookie may be counted as a single unique visitor. In
addition, although we use technology designed to block low-quality traffic, such
as robots, spiders and other software, we may not be able to prevent all such
traffic, and such technology may have the effect of blocking some valid traffic.
For these and other reasons, the calculations of our desktop unique visitors and
mobile website unique visitors may not accurately reflect the number of people
actually using our platform.
Our measures of traffic and
other key metrics may differ from estimates published by third parties (other
than those whose data we use to calculate our key metrics) or from similar
metrics of our competitors. We are continually seeking to improve our ability to
measure these key metrics, and regularly review our processes to assess
potential improvements to their accuracy. However, if our users, advertisers,
partners and stockholders do not perceive our metrics to be accurate
representations, or if we discover material inaccuracies in our metrics, our
reputation may be harmed.
52
Risks Related to
Regulatory Compliance and Legal Matters
We are, and may be in
the future, subject to disputes and assertions by third parties that we violate
their rights. These disputes may be costly to defend and could harm our business
and operating results.
We currently face, and we
expect to face from time to time in the future, allegations that we have
violated the rights of third parties, including patent, trademark, copyright and
other intellectual property rights, and the rights of current and former
employees, users and business owners. For example, various businesses have sued
us alleging that we manipulate Yelp reviews in order to coerce them and other
businesses to pay for Yelp advertising. The nature of our business also exposes
us to claims relating to the information posted on our platform, including
claims for defamation, libel, negligence and copyright or trademark
infringement, among others. Businesses have in the past claimed, and may in the
future claim, that we are responsible for the defamatory reviews posted by our
users. We expect claims like these to continue, and potentially increase in
proportion to the amount of content on our platform. In some instances, we may
elect or be compelled to remove the content that is the subject of such claims,
or may be forced to pay substantial damages if we are unsuccessful in our
efforts to defend against these claims. If we elect or are compelled to remove
content from our platform, our products and services may become less useful to
consumers and our traffic may decline, which would have a negative impact on our
business.
We are also regularly
exposed to claims based on allegations of infringement or other violations of
intellectual property rights. Companies in the Internet, technology and media
industries own large numbers of patent and other intellectual property rights,
and frequently enter into litigation. Various non-practicing entities that own
patents and other intellectual property rights also often aggressively attempt
to assert their rights in order to extract value from technology companies. From
time to time, we receive notice letters from patent holders alleging that
certain of our products and services infringe their patent rights, and we are
presently involved in numerous patent lawsuits, including lawsuits involving
plaintiffs targeting multiple defendants in the same or similar suits. While we
are pursuing a number of patent applications, we currently have only limited
patent protection for our core business, and the contractual restrictions and
trade secrets that protect our proprietary technology provide only limited
safeguards against infringement. This may make it more difficult to defend
certain of our intellectual property rights, particularly related to our core
business.
We expect other claims to
be made against us in the future, and as we face increasing competition and gain
an increasingly high profile, we expect the number of claims against us to
accelerate. The results of litigation and claims to which we may be subject
cannot be predicted with any certainty. Even if the claims are without merit,
the costs associated with defending against them may be substantial in terms of
time, money and management distraction. In particular, patent and other
intellectual property litigation may be protracted and expensive, and the
results may require us to stop offering certain features, purchase licenses or
modify our products and features while we develop non-infringing substitutes, or
otherwise involve significant settlement costs. The development of alternative
non-infringing technology or practices could require significant effort and
expense or may not be feasible. Even if claims do not result in litigation or
are resolved in our favor without significant cash settlements, such matters,
and the time and resources necessary to resolve them, could harm our business,
results of operations and reputation.
*Our business is
subject to complex and evolving U.S. and foreign regulations and other legal
obligations related to privacy, data protection and other matters. Our actual or
perceived failure to comply with such regulations and obligations could harm our
business.
We are subject to a variety
of laws in the United States and abroad that involve matters central to our
business, including laws regarding privacy, data retention, distribution of
user-generated content and consumer protection, among others. For example,
because we receive, store and process personal information and other user data,
including credit card information, we are subject to numerous federal, state and
local laws around the world regarding privacy and the storing, sharing, use,
processing, disclosure and protection of personal information and other user
data. We are also subject to a variety of laws, regulations and guidelines that
regulate the way we distinguish paid search results and other types of
advertising from unpaid search results.
The application and
interpretation of these laws and regulations are often uncertain, particularly
in the new and rapidly evolving industry in which we operate. For example, we
rely on laws limiting the liability of providers of online services for
activities of their users and other third parties. These laws are currently
being tested by a number of claims, including actions based on invasion of
privacy and other torts, unfair competition, copyright and trademark
infringement and other theories based on the nature and content of the materials
searched, the ads posted or the content provided by users. It is difficult to
predict how existing laws will be applied to our business, and if our business
grows and evolves and our solutions are used in a greater number of countries,
we will also become subject to laws and regulations in additional jurisdictions,
which may be inconsistent with the laws of the jurisdictions to which we are
currently subject. For example, the risk related to liability for third-party
actions may be greater in certain jurisdictions outside the United States where
our protection from such liability may be unclear.
53
It is also possible that
the interpretation and application of various laws and regulations may conflict
with other rules or our practices, such as industry standards to which we
adhere, our privacy policies and our privacy-related obligations to third
parties (including, in certain instances, voluntary third-party certification
bodies). Similarly, our business could be adversely affected if new
legislation or regulations are
adopted that require us to change our current practices or the design of our
platform, products or features. For example, regulatory frameworks for privacy
issues are currently in flux worldwide, and are likely to remain so for the
foreseeable future due to increased public scrutiny of the practices of
companies offering online services with respect to personal information of their
users. The U.S. government, including the Federal Trade Commission and the
Department of Commerce, and many state governments are reviewing the need for
greater regulation of the collection, processing, storage and use of information
about consumer behavior on the Internet, including regulation aimed at
restricting certain targeted advertising practices. The European Commission
recently approved a new safe harbor program, the E.U.-U.S. Privacy Shield,
covering the transfer of personal data from the European Union to the United
States, and a new general data protection regulation is expected to take effect
in the European Union by 2018, each of which may be subject to varying
interpretations and evolving practices, which would create uncertainty for us
and possibly result in significantly greater compliance burdens for companies
such as us with users and operations in Europe. Changes like these could
increase our administrative costs and make it more difficult for consumers to
use our platform, resulting in less traffic and revenue. Such changes could also
make it more difficult for us to provide effective advertising tools to
businesses on our platform, resulting in fewer advertisers and less revenue.
We believe that our
policies and practices comply with applicable laws and regulations. However, if
our belief proves incorrect, if these guidelines, laws or regulations or their
interpretations change or new legislation or regulations are enacted, or if the
third parties with whom we share user information fail to comply with such
guidelines, laws, regulations or their contractual obligations to us, we may be
forced to implement new measures to reduce our legal exposure. This may require
us to expend substantial resources, delay development of new products or
discontinue certain products or features, which would negatively impact our
business. For example, if we fail to comply with our privacy-related obligations
to users or third parties, or any compromise of security that results in the
unauthorized release or transfer of personally identifiable information or other
user data, we may be compelled to provide additional disclosures to our users,
obtain additional consents from our users before collecting or using their
information or implement new safeguards to help our users manage our use of
their information, among other changes. We may also face litigation,
governmental enforcement actions or negative publicity, which could cause our
users and advertisers to lose trust in us and have an adverse effect on our
business. For example, from time to time we receive inquiries from government
agencies regarding our business practices. Although the internal resources
expended and expenses incurred in connection with such inquiries and their
resolutions have not been material to date, any resulting negative publicity
could adversely affect our reputation and brand. Responding to and resolving any
future litigation, investigations, settlements or other regulatory actions may
require significant time and resources, and could diminish confidence in and the
use of our products.
Domestic and certain
foreign laws may be interpreted and enforced in ways that impose new obligations
on us with respect to Yelp Deals, which may harm our business and results of
operations.
Our Yelp Deals products may
be deemed gift certificates, store gift cards, general-use prepaid cards or
other vouchers, or gift cards, subject to, among other laws, the federal
Credit Card Accountability Responsibility and Disclosure Act of 2009 (the
Credit CARD Act) and similar state and foreign laws. Many of these laws
include specific disclosure requirements and prohibitions or limitations on the
use of expiration dates and the imposition of certain fees. Various companies
that provide deal products similar to ours have been subject to allegations that
their deal products are subject to and violate the Credit CARD Act and various
state laws governing gift cards. Lawsuits have also been filed in other
locations in which we sell or plan to sell our Yelp Deals, such as the Canadian
province of Ontario, alleging similar violations of provincial legislation
governing gift cards.
The application of various
other laws and regulations to our products, and particularly our Yelp Deals and
Gift Certificates, is uncertain. These include laws and regulations pertaining
to unclaimed and abandoned property, partial redemption, refunds,
revenue-sharing restrictions on certain trade groups and professions, sales and
other local taxes and the sale of alcoholic beverages. In addition, we may
become, or be determined to be, subject to federal, state or foreign laws
regulating money transmitters or aimed at preventing money laundering or
terrorist financing, including the Bank Secrecy Act, the USA PATRIOT Act and
other similar future laws or regulations.
If we become subject to
claims or are required to alter our business practices as a result of current or
future laws and regulations, our revenue could decrease, our costs could
increase and our business could otherwise be harmed. In addition, the costs and
expenses associated with defending any actions related to such additional laws
and regulations and any payments of related penalties, fines, judgments or
settlements could harm our business.
The requirements of
being a public company may strain our resources, divert managements attention
and affect our ability to attract and retain qualified board
members.
As a public company, we are
subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley
Act, the Dodd-Frank Act, the listing requirements of the New York Stock Exchange
and other applicable securities rules and regulations. Compliance with these
rules and regulations has increased, and will likely continue to increase, our
legal and financial compliance costs, make some activities more difficult,
time-consuming or costly, and place significant strain on our personnel, systems
and resources. In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and
financial compliance costs and making some activities more time consuming. These
laws, regulations and standards are subject to varying interpretations, in many
cases due to their lack of specificity, and, as a result, their application in
practice may evolve over time. This could result in continuing uncertainty
regarding compliance matters, higher administrative expenses and a diversion of
managements time and attention. Further, if our compliance efforts differ from
the activities intended by regulatory or governing bodies due to ambiguities
related to practice, regulatory authorities may initiate legal proceedings
against us and our business may be harmed. Being a public company that is
subject to these rules and regulations also makes it more expensive for us to
obtain and retain director and officer liability insurance, and we may in the
future be required to accept reduced coverage or incur substantially higher
costs to obtain or retain adequate coverage. These factors could also make it
more difficult for us to attract and retain qualified members of our board of
directors and qualified executive officers.
54
Risks Related to
Ownership of Our Common Stock
*Our share price has
been and will likely continue to be volatile.
The trading price of our
common stock has been, and is likely to continue to be, highly volatile and
could be subject to wide fluctuations in response to various factors, some of
which are beyond our control. During 2016, our common stocks daily closing
price ranged from $15.23 to $42.16, and was $32.53 on July 31, 2017. In
addition to the factors discussed in this Risk Factors section and elsewhere
in this Quarterly Report, factors that may cause volatility in our share price
include:
●
|
actual or anticipated fluctuations in our
financial condition and operating results;
|
●
|
changes in projected
operating and financial results;
|
●
|
actual or anticipated
changes in our growth rate relative to our
competitors;
|
●
|
repurchase of our common stock pursuant to our stock repurchase program, which could also cause our stock price to be higher that it would be in the absence of such a program and could potentially reduce the market liquidity for our stock;
|
●
|
announcements of changes in strategy, such
as the announcement of our plan to wind down our international sales and
marketing operations to focus on our core U.S. and Canadian
markets;
|
●
|
announcements of technological innovations
or new offerings by us or our competitors;
|
●
|
announcements by us or our competitors of
significant acquisitions, strategic partnerships, joint ventures or
capital-raising activities or commitments;
|
●
|
additions or departures of key
personnel;
|
●
|
actions of securities analysts who cover our
company, such as publishing research or forecasts about our business (and
our performance against such forecasts), changing the rating of our common
stock or ceasing coverage of our company;
|
●
|
investor sentiment with respect to our
competitors, business partners and industry in
general;
|
●
|
reporting on our business by the financial
media, including television, radio and press reports and
blogs;
|
●
|
fluctuations in the
value of companies perceived by investors to be comparable to
us;
|
●
|
changes in the way we
measure our key metrics;
|
●
|
sales of our common
stock;
|
●
|
changes in laws or
regulations applicable to our solutions;
|
●
|
share price and
volume fluctuations attributable to inconsistent trading volume levels of
our shares; and
|
●
|
general economic and
market conditions such as recessions or interest rate changes.
|
Furthermore, the stock
markets have recently experienced extreme price and volume fluctuations that
have affected and continue to affect the market prices of equity securities of
many companies. These fluctuations often have been unrelated or disproportionate
to the operating performance of those companies. In the past, companies that
have experienced volatility in the market price of their stock have been subject
to securities class action litigation. For example, in August 2014, we and
certain of our officers were sued in two similar putative class action lawsuits
alleging violations of the federal securities laws for allegedly making
materially false and misleading statements. We may be the target of additional
litigation of this type in the future as well. Securities litigation against us
could result in substantial costs and divert our managements time and attention
from other business concerns, which could harm our business.
We do not intend to
pay dividends for the foreseeable future, and as a result, our stockholders
ability to achieve a return on their investment will depend on appreciation in
the price of our common stock.
55
We have never declared or
paid any cash dividends on our common stock and do not intend to pay any cash
dividends in the foreseeable future. We anticipate that we will retain all of
our future earnings for use in the development of our business and for general
corporate purposes. Any determination to pay dividends in the future will be at
the discretion of our board of directors. Accordingly, investors must rely on
sales of their common stock after price appreciation, which may never occur, as
the only way to realize future gains on their investments.
Anti-takeover
provisions in our charter documents and under Delaware law could make an
acquisition of our Company more difficult, limit attempts by our stockholders to
replace or remove our current management and limit the market price of our
common stock.
Provisions in our
certificate of incorporation and bylaws may have the effect of delaying or
preventing a change in control or changes in our management. Our amended and
restated certificate of incorporation and amended and restated bylaws include
provisions that:
●
|
authorize our board of directors to issue,
without further action by the stockholders, up to 10,000,000 shares of
undesignated preferred stock;
|
●
|
require that any action to be taken by our
stockholders be effected at a duly called annual or special meeting and
not by written consent;
|
●
|
specify that special meetings of our
stockholders can be called only by our board of directors, the Chair of
our board of directors or our Chief Executive
Officer;
|
●
|
establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting, including
proposed nominations of persons for election to our board of
directors;
|
●
|
establish that our board of directors is
divided into three classes, with directors in each class serving
three-year staggered terms;
|
●
|
prohibit cumulative voting in the election
of directors;
|
●
|
provide that vacancies on our board of
directors may be filled only by a majority of directors then in office,
even though less than a quorum; and
|
●
|
require the approval of our board of
directors or the holders of a supermajority of our outstanding shares of
capital stock to amend our bylaws and certain provisions of our
certificate of incorporation.
|
These provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our
current management by making it more difficult for stockholders to replace
members of our board of directors, which is responsible for appointing the
members of our management. In addition, because we are incorporated in Delaware,
we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation from engaging
in any of a broad range of business combinations with any interested
stockholder for a period of three years following the date on which the
stockholder became an interested stockholder.
*Future sales of our
common stock in the public market could cause our share price to
decline.
Sales of a substantial
number of shares of our common stock in the public market, particularly sales by
our directors, officers, employees and significant stockholders, or the
perception that these sales might occur, could depress the market price of our
common stock and could impair our ability to raise capital through the sale of
additional equity securities. As of June 30, 2017, we had 81,752,997 shares of
common stock outstanding.