Yahoo 2014 Annual Report Download - page 58

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Search Revenue
Search revenue is generated from mobile and PC clicks on text-based links to advertisers’ Websites
that appear primarily on search results pages (“search advertising”). We recognize revenue from
search advertising on Yahoo Properties and Affiliate sites. Search revenue is recognized based on
Paid Clicks. A Paid Click occurs when an end-user clicks on a sponsored listing on Yahoo Properties
or Affiliate sites for which an advertiser pays on a per click basis. Under the Search Agreement with
Microsoft, in transitioned markets we report as revenue our 88 percent revenue share as we are not
the primary obligor in the arrangement with the advertisers and publishers, and the amounts paid to
Affiliates are recorded as a reduction of revenue. Prior to transition, we paid Affiliates TAC for the
revenue generated from the search advertisements on Affiliate sites. The revenue derived from these
arrangements is reported on a gross basis (before deducting the TAC paid to Affiliates as cost of
revenue—TAC), as we were the primary obligor to the advertisers in non-transitioned markets. The
search revenue generated from mobile ads served through Yahoo Gemini that involve traffic supplied
by Affiliates is reported gross of the TAC paid to Affiliates (reported as cost of revenue – TAC) as the
Company performs the search service. Accordingly, the Company is considered the primary obligor
to the advertisers who are the customers of the search advertising service. We also generate search
revenue from a revenue sharing arrangement with Yahoo Japan for search technology and services
as reported.
Search revenue for the year ended December 31, 2014 increased by 3 percent, compared to the same
period of 2013, driven by revenue-per-search in the Americas region on Yahoo Properties and growth
in advertising revenue from mobile, partially offset by the impact of the Microsoft transition in the
Asia Pacific region. Search revenue increased for the year ended December 31, 2014, as compared to
2013, despite the expiration in March 2014 of Microsoft’s guarantee of Yahoo revenue-per-search
under the Search Agreement (the “RPS Guarantee”) in the U.S. The increase in search revenue for the
year ended December 31, 2014 was primarily attributable to an increase in advertising revenue on
Yahoo Properties in the Americas, EMEA, and Asia Pacific regions of $94 million, $38 million, and $15
million, respectively, partially offset by a decline in advertising revenue on Affiliate sites in the
Americas, EMEA, and Asia Pacific regions of $12 million, $8 million and $76 million, respectively. The
decline in Affiliate search revenue in the Asia Pacific region was due to the required change in
revenue presentation for transitioned markets from a gross (before TAC) to a net (after TAC) basis.
Search revenue for the year ended December 31, 2013 decreased by 8 percent, compared to 2012.
Search revenue decreased primarily due to declines in Affiliate revenue in the Asia Pacific region
resulting from the closure of our Korea business, and declines in Affiliate revenue in the EMEA region
due to the required change in revenue presentation for transitioned markets from a gross (before
TAC) to a net (after TAC) basis. This was partially offset by increased search revenue in the Americas
region, which resulted from an increase in sponsored searches on Yahoo Properties and higher
revenue per search due to improved ad formats.
Display Revenue
Display revenue is generated from the display of graphical and non-graphical advertisements
(“display advertising”). We earn revenue from guaranteed or “premium” display advertising by
delivering advertisements according to advertisers’ specified criteria, such as number of impressions
during a fixed period on a specific placement. Also, we earn revenue from non-guaranteed or “non-
premium” display advertising by delivering advertisements on a preemptible basis. Non-premium
advertising also includes native advertising for which we recognize revenue when a user clicks on a
native advertisement.
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