Classmates.com 2005 Annual Report Download - page 47

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Year Ended December 31, 2004 compared to
the Year Ended December 31, 2003 (unaudited)
Revenues
Billable Services Revenues
Billable services revenues increased by $104.7 million, or 34%, to $410.8 million for the year ended December 31, 2004, compared to
$306.1 million for the year ended December 31, 2003. The increase was due to an increase in the number of Internet access accounts,
particularly those accounts subscribing to our accelerator services, and an increase in our average number of pay accounts, offset partially by a
decrease in our ARPU.
Our average number of pay accounts was approximately 3,859,000 for the year ended December 31, 2004, compared to approximately
2,534,000 for the year ended December 31, 2003. The increase in our average number of pay accounts resulted from a number of factors
including our acquisition of Classmates in November 2004, from which we acquired approximately 1,452,000 pay accounts and which increased
our average number of pay accounts by 726,000; increased spending on marketing and promotion of our pay services, particularly our
accelerator services; the introduction of new pay services, particularly our premium email services; an expansion of our online and offline
distribution channels; our Web-hosting acquisition in April 2004; and a significant number of our free accounts upgrading to our pay services.
However, we experienced limited growth in the June 2004 and September 2004 quarters in pay access accounts and, for the first time since we
began offering pay access services, experienced a decline in pay access accounts in the December 2004 quarter. Excluding the pay accounts from
the Classmates acquisition, our growth in pay accounts during the December 2004 quarter was 142,000. The magnitude of this growth was
primarily attributable to an increase in premium email accounts resulting from an email consolidation program which resulted in a number of our
free accounts upgrading to pay accounts.
ARPU was $8.87 for the year ended December 31, 2004, compared to $10.07 for the year ended December 31, 2003. ARPU for the
December 2004 quarter was $8.98, a decrease from $10.60 in the September 2004 quarter. These decreases in ARPU were due primarily to the
timing of the addition of 1,452,000 pay accounts from our acquisition of Classmates in November 2004, and due to the lower ARPU of the
Classmates pay service. Additionally, these decreases were due to an increase in the percentage of pay accounts with a lower ARPU, particularly
our premium email services; a decrease in the percentage of total pay accounts comprised of our accelerator services which generates a
significantly higher average ARPU; an increase in the number of free months of service offered for initial trial periods and retention programs;
and an increase in the number of accounts signing up for promotional pricing plans. In addition, we experienced slower growth in the number of
accelerator subscriptions.
Advertising and Commerce Revenues
Advertising and commerce revenues increased by $4.7 million, or 14%, to $37.8 million for the year ended December 31, 2004, from
$33.1 million for the year ended December 31, 2003. The increase was attributable to an increase in revenue generated from our search
arrangement with Yahoo! Search, and advertising revenues generated from our 2004 Web-
hosting and Classmates acquisitions. The increase was
offset partially by a decrease in revenues generated from our expired agreement with GM, from which we derived 6% and 41% of our
advertising and commerce revenues for the years ended December 31, 2004 and 2003, respectively.
Cost of Billable Services
Cost of billable services increased by $2.2 million, or 2%, to $95.0 million for the year ended December 31, 2004, compared to
$92.8 million for the year ended December 31, 2003. The increase was
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