Risk Factors: Business cycle & Revenue Stability
Our Moving to Live Operations Places a Significant Strain on our Management, Operational, Financial and Other Resources. We are rapidly and significantly ramping up our infrastructure, including increasing our product and service offerings and scaling our infrastructure to support our retail, services and search businesses. This expansion increases the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and negatively affect our operating results.
We may experience significant fluctuations in our operating results and growth rate. We may not be able to accurately forecast our growth rate. We base our expense levels and investment plans on sales estimates. A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected. Our revenue growth may not be sustainable, and our percentage growth rates may decrease. Our revenue and operating profit growth depends on the continued growth of demand for the products and services offered by us or our sellers, and our business is affected by general economic and business conditions worldwide. A softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.
Our sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in this section and the following
The seasonality of our business places increased strain on our operations. We expect a disproportionate amount of our advertising income and sales to occur during our fourth quarter. If we do not stock or restock popular products provided for in our FSR Program such that we fail to meet customer demand, it could significantly affect our revenue and our future growth. If we overstock products, we may be required to take significant inventory markdowns or write-offs, which could reduce profitability. We may experience an increase in our net shipping cost due to complimentary upgrades, split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday season.
If too many customers access our websites within a short period of time due to increased holiday demand, we may experience system interruptions that make our websites unavailable or prevent us from efficiently fulfilling orders or search queries, which may reduce the volume of goods we sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies and customer service co-sources may be unable to meet the seasonal demand.
We anticipate a significant portion of our revenues will come from advertising, and a reduction in spending by or loss of advertisers could seriously harm our business projections. Our advertisers will generally be able to terminate their contracts with us at any time. Advertisers will not continue to do business with us if their investment in advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner. If we are unable to remain competitive and provide value to our advertisers, they may stop placing ads with us, which would adversely affect our revenues and business.
Our revenue growth rate could decline over time, and we anticipate downward pressure on our operating margin in the future. Our revenue growth and/or our projected revenue growth rate could decline over time as a result of a number of factors, including increasing competition, changes in our product mix, including a significant increase in mobile search queries and a deceleration in the growth of desktop queries if monetization stays at current levels, and how users make queries and act on them, there could be challenges in maintaining growth rates, the evolution of the online advertising market, including the increasing variety of online platforms for advertising, and the other markets in which we will participate and the success of our investments in new business strategies, products, services, and technologies.
The revenue growth rate for NeuroMama will depend on a number of factors, including the success of the new products we plan to introduce, our potential reliance on several key customers, the absence of long-term exclusivity arrangements with such customers, our ability to gain significant market share in the search engine space, our reliance on third-party distributors, representatives and retailers to sell certain of its products and the successful implementation of our product and operating system strategies.
We believe operating margins in the general search engine space will experience downward pressure as a result of increasing competition and increased expenditure. For instance, our operating margin will experience downward pressure if a greater percentage of our revenues comes from ads placed on our NeuroMama Affiliate Members' websites compared to revenues generated through ads placed on our own websites or if we spend a proportionately larger amount to promote the distribution of certain products, including our FSR Program.