Yahoo 2006 Annual Report Download - page 74

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The Company recognizes revenue from the display of graphical advertisements (“display advertising”) on the
Yahoo! Properties and on the websites of affiliates as “impressions” are delivered. An “impression” is delivered
when an advertisement appears in pages viewed by users. Arrangements for these services generally have terms of
up to three years and in the majority of cases, the terms are less than one year or may be terminated at any time by the
advertiser. Some of these advertising agreements may involve multiple element arrangements (arrangements with
more than one deliverable).
The Company also recognizes revenue from the display of text based links to the websites of its advertisers (“search
advertising”) which are placed on the Yahoo! Properties. Search advertising revenue is recognized as “click-
throughs” occur. A “click-through” occurs when a user clicks on an advertiser’s listing.
In addition to delivering search and display advertising on the Yahoo! properties, the Company also generates
revenue from search and/or display advertising offerings on the websites of third party entities (which the Company
refers to as “affiliates”) who have integrated the Company’s offerings into their websites. The Company pays
affiliates for the revenue generated from the display of these advertisements on the affiliates’ websites. These
payments are called traffic acquisition costs. In accordance with EITF Issue No. 99-19, “Reporting Revenue Gross
as a Principal Versus Net as an Agent,” the revenue derived from these arrangements that involve traffic supplied by
affiliates is reported gross of the payment to affiliates. This revenue is reported gross due to the fact that the
Company is the primary obligor to the advertisers who are the customers of the advertising service.
Listings revenue is generated from a variety of consumer and business listings-based services, including access to
the Yahoo! HotJobs database and classifieds such as Yahoo! Autos, Yahoo! Real Estate and other services. The
Company recognizes listings revenue when the services are performed.
Transaction revenue is generated from facilitating commerce based transactions through the Yahoo! Properties,
principally from Yahoo!’s commerce properties including Yahoo! Travel and Yahoo! Shopping. The Company
recognizes transaction revenue when there is evidence that qualifying transactions have occurred, for example,
when travel arrangements are booked through Yahoo! Travel.
Fees revenue consists of revenues generated from a variety of consumer and business fee-based services, including
Internet broadband services, premium mail, music and personals offerings as well as services for small businesses.
The Company recognizes fees revenue when the services are performed.
Current deferred revenue primarily comprises contractual billings in excess of recognized revenue and payments
received in advance of revenue recognition. Long-term deferred revenue includes amounts received from
customers for which services will not be delivered within the next 12 months. Long-term deferred revenue also
includes amounts that arose on the settlement of a litigation dispute. See Note 14 — “Litigation Settlement” for
additional information.
Allowance for Doubtful Accounts. The Company records its allowance for doubtful accounts based upon its
assessment of various factors. The Company considers historical experience, the age of the accounts receivable
balances, the credit quality of its customers, current economic conditions and other factors that may affect
customers’ ability to pay to determine the level of allowance required.
Traffic Acquisition Costs. Traffic acquisition costs consist of payments made to affiliates that have integrated
Yahoo!’s search and/or display advertising offerings into their websites and payments made to companies that direct
consumer and business traffic to the Yahoo! Properties. The Company enters into agreements of varying duration
that involve these traffic acquisition costs. There are generally three economic structures of the affiliate
agreements: fixed payments based on a guaranteed minimum amount of traffic delivered, which often carry
reciprocal performance guarantees from the affiliate; variable payments based on a percentage of the Company’s
revenue or based on a certain metric, such as number of searches or paid clicks; or a combination of the two. The
Company expenses, as cost of revenues, traffic acquisition costs associated with affiliate arrangements under two
different methods depending on the structure of the agreement. Agreements with fixed payments are expensed
64
Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)