Yahoo 2008 Annual Report Download - page 42

For the year ended December 31, 2007, fees revenues increased approximately $83 million, or 10 percent, as
compared to 2006. The year-over-year growth in 2007, as compared to 2006, is associated with an increase in the
number of paying users for our fee-based services across most of our offerings. The number of paying users was
19.0 million as of December 31, 2007, compared to 16.3 million as of December 31, 2006, an increase of 17
percent. The impact of this increase in our number of paying users was offset by a reduction in the average
monthly revenues per paying user discussed below.
Average monthly revenues per paying user was approximately $4.00 for the year ended December 31, 2008,
compared to approximately $3.00 and $3.50 for the same periods in 2007 and 2006, respectively. The increase in
average monthly revenues per paying user for the year ended December 31, 2008 is due to the change in mix of
fee-based subscribers, primarily the reduction in broadband subscribers due to the renegotiation of broadband
partnerships from fee-paying user based to an advertising revenue sharing model.
Costs and Expenses. Operating costs and expenses consist of cost of revenues, sales and marketing, product
development, general and administrative, and amortization of intangible assets. In addition, in 2008, we had
restructuring charges, net, and a goodwill impairment charge. Cost of revenues consists of traffic acquisition
costs (“TAC”), Internet connection charges, and other expenses associated with the production and usage of
Yahoo! Properties, including amortization of acquired intellectual property rights and developed technology.
Operating costs and expenses were as follows (dollars in thousands):
Year Ended December 31,
2006-2007 2007-2008
Dollar
Change
Percent
Change
Dollar
Change
Percent
Change2006 (1) 2007 (1) 2008 (1)
Cost of revenues(2) ...... $2,675,723 42% $2,838,758 41% $3,023,362 42% $163,035 6% $184,604 7%
Sales and marketing ..... $1,322,259 20% $1,610,357 23% $1,563,313 22% $288,098 22% $ (47,044) (3)%
Product development .... $ 833,147 13% $1,084,238 15% $1,221,787 17% $251,091 30% $137,549 13%
General and
administrative ........ $ 528,798 8% $ 633,431 9% $ 705,136 10% $104,633 20% $ 71,705 11%
Amortization of
intangibles(2) ......... $ 124,786 2% $ 107,077 2% $ 87,550 1% $ (17,709) (14)% $ (19,527) (18)%
Restructuring charges,
net ................. $ — — $ — — $ 106,854 1% $ — — $106,854 N/A
Goodwill impairment
charge .............. $ — — $ — — $ 487,537 7% $ — — $487,537 N/A
(1) Percent of total revenues.
(2) For the years ended December 31, 2008, 2007, and 2006, cost of revenues included amortization expense of
$194 million, $143 million, and $113 million, respectively, relating to acquired intellectual property rights
and developed technology.
Stock-based compensation expense was allocated as follows (in thousands):
Years Ended December 31,
2006 2007 2008
Cost of revenues ................................................. $ 6,621 $ 10,628 $ 13,813
Sales and marketing .............................................. 155,084 246,472 182,826
Product development ............................................. 144,807 218,207 178,091
General and administrative ........................................ 118,418 97,120 63,113
Restructuring expense reversals ..................................... — — (30,236)
Total stock-based compensation expense ......................... $424,930 $572,427 $407,607
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