Yahoo 2001 Annual Report Download - page 17

increasing number of advertisers purchasing space on the Yahoo! network as well as an increase in the
size of advertising purchased. Approximately 5,825 customers advertised on the Yahoo! network during
2001 as compared to approximately 6,025 and 5,200 in 2000 and 1999, respectively. No one customer
accounted for 10% or more of net revenues during 2001, 2000, and 1999.
There can be no assurance that the purchasing pattern of customers advertising on the Yahoo! net-
work will not continue to fluctuate, that advertisers will not continue to make smaller and shorter-term
purchases, or that market prices for online advertising will not decrease due to competitive or other fac-
tors. Due to our ongoing transition in customer base from Internet companies to companies in more tra-
ditional lines of business, as well as seasonality and the continuing weakness in worldwide economic
conditions, we currently believe that 2002 marketing services revenues will remain comparable in
absolute dollars with our 2001 marketing services revenues.
Fees and Listings Revenues. Fees and listings revenues consist of revenues generated from a variety of
fee and listings-based services we provide. These services primarily include Small Business Services,
Yahoo! Portal Solutions, broadcasting live and on-demand events, Yahoo! Personals, and certain Search
and Directory services. Fees and listings revenues in 2001 increased $24.0 million, or 20%, as compared
to 2000. The increase is primarily attributable to the expanding deployment of Yahoo! Portal Solutions
and monetization of certain Search and Directory services, as well as the increase in number of users for
our other fee and listings-based services. The increase was partially offset by a decrease in revenues from
broadcasted events, caused mainly by a decrease in the number of events to approximately 2,760 during
2001, as compared to 4,150 events during 2000. Fees and listings revenues in 2000 increased $67.1
million, or 121%, as compared to 1999. This increase was primarily attributable to the increasing number
of events and average revenue per event broadcasted as well as the increasing number of users of the
various fee and listings-based services. We broadcasted approximately 4,150 events during 2000, as com-
pared to 3,600 during 1999. For 2002, we currently expect fees and listings revenues to increase in
absolute dollars.
Transactions Revenues. Transaction revenues in 2001 increased by $12.7 million, or 65%, as compared
to 2000 and increased by $16.3 million from 1999 to 2000. The year-over-year increases are primarily a
result of the increasing number of electronic commerce transactions enabled on the Yahoo! network, prin-
cipally from our commerce properties. In 2001, the increase in transactions is primarily driven by a shift
from some of our marketing service agreements as well as a change in our Yahoo! Store platform, which
have historically been fixed-pricing arrangements, towards performance-based agreements. Transactions
revenues are also currently expected to increase in absolute dollars.
Overall, we currently expect total combined revenues for marketing services, fees and listings and
transactions to increase in 2002 as compared to 2001.
Costs and Expenses. Primary operating costs and expenses were as follows (dollars in thousands):
Years Ended December 31, 2001 * 2000 * 1999 *
Cost of revenues $157,001 22% $149,744 13% $ 93,181 16%
Sales and marketing 386,944 54% 419,725 38% 223,980 38%
Product development 126,090 18% 117,268 11% 72,368 12%
General and administrative 79,351 11% 74,508 7% 42,441 7%
*Percent of Net revenues
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Cost of Revenues. Cost of revenues consists of the expenses associated with the production and usage
of the Yahoo! network. These costs primarily consist of fees paid to third parties for content included on
our online media properties, Internet connection charges, equipment depreciation, live event production
costs, license fees, and compensation related expenses.
Cost of revenues in 2001 increased by $7.3 million, or 5%, as compared to 2000. Cost of revenues
in 2000 increased $56.6 million, or 61%, as compared to 1999. The year-over-year increases in absolute
dollars are primarily a result of an increase in costs associated with growing network usage and additional
content for new and enhanced services on the Yahoo! network. As measured in page views (defined as
electronic page displays) per day, we delivered an average of approximately 1.32 billion page views per
day in December 2001 compared to 900 million page views per day in December 2000 and an average of
approximately 470 million page views per day in December 1999. Yahoo! Japan, an unconsolidated joint
venture with SOFTBANK, is included in these page view figures and accounted for an average of approxi-
mately 196 million page views per day in December 2001, 116 million page views per day in December
2000, and 39 million page views per day in December 1999.
We currently anticipate that cost of revenues will continue to increase modestly in absolute dollars
in 2002, as network usage increases and additional content is introduced for new and enhanced services.
Sales and Marketing. Sales and marketing expenses consist primarily of advertising and other marketing
related expenses, compensation related expenses, sales commissions, and travel costs.
Sales and marketing expenses in 2001 decreased $32.8 million, or 8%, as compared to 2000. This
was primarily the result of our overall effort to manage discretionary costs and the 2001 Restructuring
programs described below. The cost efficiencies gained in 2001 were partially offset by costs related to
the continued investment in our consolidated international subsidiaries. The year-over-year increase in
sales and marketing expenses as a percentage of net revenues is primarily due to lower marketing serv-
ices revenues. Sales and marketing expenses in 2000 increased $195.7 million, or 87%, as compared to
1999, primarily as a result of the increase in advertising and distribution costs associated with our aggres-
sive brand-building strategy, increases in compensation expense associated with growth in the direct sales
force and marketing personnel, expansion in the international subsidiaries, and an increase in sales com-
missions associated with the increase in revenues.
We currently anticipate that sales and marketing expenses in absolute dollars will be relatively con-
sistent in 2002 as compared to 2001.
Product Development. Product development expenses consist primarily of compensation related expenses
incurred for enhancements to and maintenance of the Yahoo! network, classification and organization of
listings within Yahoo! properties, research and development expenses, and other operating costs.
Product development expenses in 2001 increased $8.8 million, or 8%, as compared to 2000 and
increased $44.9 million, or 62%, from 1999 to 2000. The year-over-year increases in absolute dollars are
primarily attributable to increases in the total compensation for engineers that develop and enhance
media properties on the Yahoo! network and their related compensation during the respective years, off-
set by savings obtained through our 2001 Restructuring programs described below.
We believe that continued investments in product development are required to remain competitive.
Consequently, we currently anticipate that product development costs in absolute dollars will increase
modestly in 2002 compared to 2001.