Yahoo 2014 Annual Report Download - page 64

Operating Costs and Expenses
Cost of Revenue—TAC
TAC consists of payments made to third-party entities that have integrated our advertising offerings
into their Websites or other offerings and payments made to companies that direct consumer and
business traffic to Yahoo Properties. We enter into agreements of varying duration that involve TAC.
There are generally two economic structures of the Affiliate agreements: fixed payments with or
without a guaranteed minimum amount of traffic delivered or variable payments based on a
percentage of our revenue or based on a certain metric, such as number of searches or paid clicks.
We expense TAC under two different methods. Agreements with fixed payments are expensed
ratably over the term the fixed payment covers or as traffic is delivered. Agreements based on a
percentage of revenue, number of searches, or other metrics are expensed based on the volume of
the underlying activity or revenue multiplied by the agreed-upon price or rate.
TAC for the year ended December 31, 2014 decreased $37 million, or 15 percent, compared to 2013.
The decrease for the year ended December 31, 2014, compared to 2013, was primarily attributable to
declines in TAC in the Asia Pacific and EMEA regions of $38 million and $6 million, respectively,
partially offset by an increase in TAC in the Americas region of $8 million related to an increase in
search and listings-based TAC. The decline in the Asia Pacific region was primarily attributable to the
required change in revenue presentation for transitioned markets from a gross (before TAC) basis to
a net (after TAC).
TAC for the year ended December 31, 2013 decreased $264 million, or 51 percent, compared to 2012.
The decrease for the year ended December 31, 2013, compared to 2012, was primarily attributable to
declines in the Asia Pacific, EMEA and Americas regions of $170 million, $71 million and $23 million,
respectively. The decline was due to (i) the closure of our Korea business in the Asia Pacific region,
(ii) the required change in revenue presentation for additional transitioned markets from a gross
(before TAC) to a net (after TAC) basis in the EMEA region, and (iii) a decline in display revenue in
the Americas region.
TAC represented approximately 5 percent of GAAP revenue for the year ended December 31, 2014,
compared to 6 percent and 10 percent in 2013 and 2012, respectively.
Cost of Revenue—Other
Cost of revenue—other consists of bandwidth costs, and other expenses associated with the
production and usage of Yahoo Properties, including amortization of developed technology and
patents. Cost of revenue—other also includes costs for Yahoo’s technology platforms and
infrastructure, including depreciation expense and other operating costs, directly related to revenue
generating activities.
Cost of revenue—other decreased $14 million, or 1 percent, for the year ended December 31, 2014,
compared to 2013, due to declines in depreciation and amortization expense of $23 million,
compensation costs of $10 million, and facilities and equipment expense of $4 million partially offset
by increases in stock-based compensation expense of $18 million and credit card fees of $5 million.
Cost of revenue—other decreased $7 million, or 1 percent, for the year ended December 31, 2013,
compared to 2012. The decrease for the year ended December 31, 2013, compared to 2012, was
primarily due to a decline in amortization of developed technology and patents of $18 million partially
offset by an increase in content costs of $11 million.
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