1091171--3/16/2007--BLUE_NILE

related topics

{customer, product, revenue}

{system, service, information}

{product, market, service}

{acquisition, growth, future}

{property, intellectual, protect}

{tax, income, asset}

{personnel, key, retain}

{stock, price, operating}

{control, financial, internal}

{regulation, change, law}

{competitive, industry, competition}

As a result of seasonal fluctuations in our net sales, our quarterly results may fluctuate and could be below expectations. Our failure to acquire quality diamonds and fine jewelry at commercially reasonable prices would result in higher costs and lower net sales and damage our competitive position. Our failure to meet customer expectations with respect to price would adversely affect our business and results of operations. Purchasers of diamonds and fine jewelry may not choose to shop online, which would prevent us from increasing net sales. We may not succeed in continuing to establish the Blue Nile brand, which would prevent us from acquiring customers and increasing our net sales. We face significant competition and may be unsuccessful in competing against current and future competitors. In order to increase net sales and to sustain or increase profitability, we must attract customers in a cost-effective manner. We rely exclusively on the sale of diamonds and fine jewelry for our net sales, and demand for these products could decline. We may be unsuccessful in further expanding our operations internationally. We rely on our suppliers, third-party carriers and third-party jewelers as part of our fulfillment process, and these third parties may fail to adequately serve our customers. If our fulfillment operations are interrupted for any significant period of time, our business and results of operations would be substantially harmed. We face the risk of theft of our products from inventory or during shipment. If the single facility where substantially all of our computer and communications hardware is located fails, our business, results of operations and financial condition would be harmed. Our failure to protect confidential information of our customers and our network against security breaches could damage our reputation and brand and substantially harm our business and results of operations. Our failure to effectively manage the growth in our operations may prevent us from successfully expanding our business. The success of our business may depend on our ability to successfully expand our product offerings. If we are unable to accurately manage our inventory of fine jewelry, our reputation and results of operations could suffer. Repurchases of our common stock may not prove to be the best use of our cash resources. We have incurred significant operating losses in the past and may not be able to sustain profitability in the future. We rely on the services of our key personnel, any of whom would be difficult to replace. Failure to adequately protect or enforce our intellectual property rights could substantially harm our business and results of operations. Assertions by third parties of infringement by us of their intellectual property rights could result in significant costs and substantially harm our business and results of operations. Increased product returns and the failure to accurately predict product returns could substantially harm our business and results of operations. Interruptions to our systems that impair customer access to our websites would damage our reputation and brand and substantially harm our business and results of operations. Our failure to rapidly respond to technological change could result in our services or systems becoming obsolete and substantially harm our business and results of operations. If use of the Internet, particularly with respect to online commerce, does not continue to increase as rapidly as we anticipate, our business will be harmed. We rely on our relationship with a third-party consumer credit company to offer financing for the purchase of our products. We may undertake acquisitions to expand our business, which may pose risks to our business and dilute the ownership of our existing stockholders. Our net sales may be negatively affected if we are required to charge taxes on purchases. Government regulation of the Internet and e-commerce is evolving and unfavorable changes could substantially harm our business and results of operations. Our failure to address risks associated with payment methods, credit card fraud and other consumer fraud could damage our reputation and brand and may cause our business and results of operations to suffer.

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1091171--3/16/2007--BLUE_NILE_INC