Classmates.com 2007 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2007 Classmates.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 153

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153

decline in advertising revenues generated from our social networking services. As a result of our decision in the second quarter of 2006 to
enhance the user experience by significantly decreasing the number of advertising placements on our social networking Web sites, advertising
revenues for our social networking services were adversely impacted.
Communications Advertising Revenues. Communications advertising revenues increased by $3.1 million, or 8%, to $40.8 million for the
year ended December 31, 2006, compared to $37.7 million for the year ended December 31, 2005. The increase was primarily attributable to
increases in advertising sales and data revenues, partially offset by decreases in search revenues due to a decline in our active access accounts.
Cost of Revenues
Consolidated Cost of Revenues. Consolidated cost of revenues increased by $9.3 million, or 8%, to $120.0 million for the year ended
December 31, 2006, compared to $110.7 million for the year ended December 31, 2005. The increase was primarily due to increased costs
associated with our Classmates Media segment and, to a lesser extent, a $0.8 million increase in depreciation, partially offset by a decrease in
costs associated with our Communications segment. Cost of revenues for our Classmates Media segment and for our Communications segment
constituted 24.4% and 75.6%, respectively, of our total segment cost of revenues for the year ended December 31, 2006, compared to 10.3% and
89.7%, respectively, for the year ended December 31, 2005.
Classmates Media Cost of Revenues.
Classmates Media cost of revenues increased by $16.4 million, or 156%, to $26.9 million, or 19.3%
of Classmates Media revenues, for the year ended December 31, 2006, compared to $10.5 million, or 12.4% of Classmates Media revenues, for
the year ended December 31, 2005. The increase was primarily related to $14.3 million of costs associated with our loyalty marketing service,
which we acquired in April 2006 and, to a lesser extent, increased costs associated with our social networking services and a $0.2 million
increase in stock-based compensation in connection with the adoption of SFAS No. 123R in the quarter ended March 31, 2006. Cost of revenues
as a percentage of revenues increased primarily due to our loyalty marketing service which has a higher cost of revenues as a percentage of
revenues as compared to our social networking services. The higher cost of revenues associated with our loyalty marketing service is due to the
benefits provided to our loyalty marketing members when they redeem points earned in connection with our loyalty marketing service.
Communications Cost of Revenues. Communications cost of revenues decreased by $7.9 million, or 9%, to $83.5 million, or 21.8% of
Communications revenues, for the year ended December 31, 2006, compared to $91.4 million, or 20.8% of Communications revenues, for the
year ended December 31, 2005. The decrease was primarily due to a $10.0 million decrease in telecommunications costs and a $3.3 million
decrease in customer support and billing-related costs as a result of a decrease in the number of pay Internet access accounts. These decreases
were partially offset by an increase of $3.8 million in costs associated with our VoIP services, a $0.7 million increase in network and other
overhead-related costs and a $0.5 million increase in stock-
based compensation in connection with the adoption of SFAS No. 123R in the March
2006 quarter. As a percentage of Communications revenues, Communications cost of revenues increased in the year ended December 31, 2006
compared to the year ended December 31, 2005, primarily as a result of the impact of our VoIP services.
Sales and Marketing
Consolidated Sales and Marketing Expenses. Consolidated sales and marketing expenses decreased by $32.3 million, or 15%, to
$177.0 million, or 33.9% of consolidated revenues, for the year ended December 31, 2006, compared to $209.3 million, or 39.9% of
consolidated revenues, for the year ended December 31, 2005. The decrease was primarily attributable to a significant reduction in marketing
expenses related to our Communications segment, partially offset by an increase in marketing expenses
58