Yahoo 2014 Annual Report Download - page 65

Cost of revenue—other represented approximately 23 percent of GAAP revenue for the year ended
December 31, 2014, compared to 23 percent and 22 percent in 2013 and 2012, respectively.
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and other marketing-related expenses,
compensation-related expenses (including stock-based compensation expense), sales commissions,
and travel costs.
Sales and marketing expenses for the year ended December 31, 2014 increased $103 million, or 9
percent, as compared to 2013. For the year ended December 31, 2014, compensation costs increased
$40 million, stock-based compensation expense increased $53 million, marketing and public relations
expense increased $14 million, and facilities expense increased $14 million. These increases were
partially offset by declines in travel and entertainment expense of $9 million and outside service
provider expenses of $9 million. The increase in compensation costs for the year ended December 31,
2014 was attributable to increases in sales commissions and merit-based increases in salaries, as well
as increases in benefits and incentive compensation. The increase in stock-based compensation
expense for the year ended December 31, 2014 was attributable to an increase in the number of
awards being expensed at a higher fair value. The increase in marketing and public relations expense
for the year ended December 31, 2014 was primarily due to increased media advertising and spend on
promotional event management.
Sales and marketing expenses for the year ended December 31, 2013 increased $29 million, or 3
percent, as compared to 2012. The year-over-year increase was primarily due to an increase in
marketing expenses of $31 million and stock-based compensation expenses of $20 million. This was
offset by a decline in other compensation costs of $25 million. The increase in marketing expenses
was primarily due to advertising campaigns to generate additional traffic on Yahoo Shopping, Mail,
Autos and Screen, as well as our On the Road with Yahoo marketing campaign and our Fantasy
Football television advertising campaign, for which there were no similar campaigns in 2012. The
increase in stock based compensation in the sales and marketing function was due to an increase in
the number of awards granted at a higher fair value, including performance-based awards. The
decline in other compensation costs in the sales and marketing function was primarily due to a
decline in average headcount in the function year-over-year.
Sales and marketing expenses represented approximately 27 percent of GAAP revenue for the year
ended December 31, 2014, compared to 24 percent and 22 percent in 2013 and 2012, respectively.
Product Development
Product development expenses consist primarily of compensation-related expenses (including stock-
based compensation expense) incurred for the development of, enhancements to and maintenance
of Yahoo Properties, classification and organization of listings within Yahoo Properties, research and
development, and Yahoo’s technology platforms and infrastructure. Depreciation expense and other
operating costs are also included in product development.
Product development expenses for the year ended December 31, 2014 increased $199 million, or 20
percent, as compared to 2013. For the year ended December 31, 2014, the increase was primarily
attributable to increases in compensation costs of $131 million, stock-based compensation expense of
$56 million, and a decline in capitalizable projects of $38 million, partially offset by declines in
depreciation and amortization expense of $12 million, and outside service provider expense of $14
million. The increase in compensation costs for the year ended December 31, 2014 was primarily
attributable to a 6 percent increase in headcount year-over-year, including incremental headcount for
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