Classmates.com 2006 Annual Report Download - page 43

respectively, of our consolidated advertising revenues for the year ended December 31, 2005, compared to 90.7% and 9.3%, respectively, for the
year ended December 31, 2004.
Communications Advertising Revenues. Communications advertising revenues increased by $1.3 million, or 4%, to $35.6 million for the
year ended December 31, 2005, compared to $34.3 million for the year ended December 31, 2004. The increase was primarily attributable to
increased advertising sales, data revenue and revenues from our search agreement with Yahoo! Search. These increases were partially offset by a
decrease in revenues generated from our expired agreement with General Motors Corporation.
Content & Media Advertising Revenues. Content & Media advertising revenues increased by $19.9 million to $23.5 million for the year
ended December 31, 2005, compared to $3.5 million for the year ended December 31, 2004. The increase was primarily due to increased
advertising revenues associated with the acquisition of Classmates in the December 2004 quarter and, to a lesser extent, advertising revenues
generated from our Web-hosting services.
Cost of Revenues
Consolidated Cost of Revenues. Consolidated cost of revenues increased by $8.3 million, or 8%, to $110.7 million, or 21.1% of
consolidated revenues, for the year ended December 31, 2005, compared to $102.4 million, or 22.8% of consolidated revenues, for the year
ended December 31, 2004. The increase was primarily due to increased costs associated with our Content & Media segment and a $3.6 million
increase in depreciation, partially offset by decreased costs associated with our Communications segment. Cost of revenues for our
Communications segment and for our Content & Media segment constituted 87.7% and 12.3%, respectively, of our total segment cost of
revenues for the year ended December 31, 2005, compared to 97.1% and 2.9%, respectively, for the year ended December 31, 2004.
Communications Cost of Revenues. Communications costs of revenues decreased by $5.2 million, or 6%, to $89.3 million, or 20.7% of
Communications revenues, for the year ended December 31, 2005, compared to $94.5 million, or 21.7% of Communications revenues, for the
year ended December 31, 2004. The decrease was due to a $6.4 million decrease in telecommunications costs and a $1.3 million decrease in
customer support and billing-related costs. These decreases were partially offset by an increase of $1.3 million in network and overhead-related
costs and $1.2 million in costs associated with our VoIP service.
Content & Media Cost of Revenues. Content & Media cost of revenues increased by $9.7 million to $12.5 million, or 13.4% of Content &
Media revenues, for the year ended December 31, 2005, compared to $2.8 million, or 19.8% of Content & Media revenues, for the year ended
December 31, 2004. The increase was primarily related to costs associated with the acquisition of Classmates in the December 2004 quarter, and
to a lesser extent, increased costs associated with our Web-hosting service.
Sales and Marketing
Consolidated Sales and Marketing Expenses. Consolidated sales and marketing expenses increased by $30.3 million, or 17%, to
$209.3 million, or 39.9% of consolidated revenues, for the year ended December 31, 2005, compared to $179.0 million, or 39.9% of
consolidated revenues, for the year ended December 31, 2004. The increase was primarily attributable to an increase in marketing expenses
related to our Content & Media segment, partially offset by a reduction in marketing expenses related to our Communications segment. The
increase was also due to a $0.9 million increase in stock-based compensation in connection with the issuance of RSUs during 2005. Sales and
marketing expenses related to our Communications segment and our Content & Media segment constituted 77.9% and 22.1%, respectively, of
total segment sales and marketing expenses for the year ended December 31, 2005 versus 97.8% and 2.2%, respectively, for the year ended
December 31, 2004.
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