Classmates.com 2008 Annual Report Download - page 69

Table of Contents
introduced in the fourth quarter of 2006 and, to a lesser extent, an increase in the number of international pay accounts. The increase in
Classmates Media services revenues due to pay accounts was partially offset by a 4% decrease in ARPU from $3.44 for the year ended
December 31, 2006 to $3.31 for the year ended December 31, 2007. The decrease in ARPU was primarily attributable to a greater overall
proportion of international pay accounts compared to U.S. pay accounts and the fact that pricing for our international social networking services
is lower than for our Classmates social networking services.
Classmates Media advertising revenues increased by $28.6 million, or 49%, to $86.9 million for the year ended December 31, 2007,
compared to $58.3 million for the year ended December 31, 2006. The increase was primarily related to revenues from our loyalty marketing
service, which we acquired in April 2006 and which was included in our results of operations for the year ended December 31, 2007 compared
to only 266 days for the year ended December 31, 2006. Revenues from our loyalty marketing service increased by $25.7 million in the year
ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to the fact that no such revenues were included in our
consolidated financial statements in the first three months and nine days of 2006 (the period prior to our acquisition of MyPoints) and an increase
in the number of loyalty marketing active accounts in the year ended December 31, 2007 compared to the year ended December 31, 2006. Our
Classmates Media advertising revenues for the year ended December 31, 2007 also increased as a result of a $3.0 million increase in advertising
revenues, compared to the year ended December 31, 2007, generated from our social networking services. The increase in advertising revenues
generated from our social networking services was primarily related to increased revenues from post-
transaction sales resulting from pay account
growth in the year ended December 31, 2007.
Classmates Media Cost of Revenues. Classmates Media cost of revenues increased by $12.6 million, or 47%, to $39.5 million, or 20.4%
of Classmates Media revenues, for the year ended December 31, 2007, compared to $26.9 million, or 19.3% of Classmates Media revenues, for
the year ended December 31, 2006. The increase was primarily related to costs of our loyalty marketing service, which we acquired in April
2006 and which was included in our results of operations for the full year ended December 31, 2007 compared to only 266 days for the year
ended December 31, 2006. Cost of revenues from our loyalty marketing service increased by $9.7 million in the year ended December 31, 2007
compared to the year ended December 31, 2006 primarily due to the fact that no such revenues or cost of revenues were included in our
consolidated financial statements in the first three months and nine days of 2006 (the period prior to our acquisition of MyPoints) and an increase
in costs associated with providing rewards in the year ended December 31, 2007 compared to the year ended December 31, 2006. In addition,
customer support, overhead and personnel-related costs associated with our social networking services increased by $2.7 million in the year
ended December 31, 2007 compared to the year ended December 31, 2006 as a result of growth in the business and an increase in headcount. As
a percentage of revenues, Classmates Media cost 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 largely due to the benefits provided to our loyalty marketing members when they redeem points earned in connection with
our loyalty marketing service.
Classmates Media Sales and Marketing Expenses. Classmates Media sales and marketing expenses increased by $18.2 million, or 30%,
to $78.9 million, or 40.8% of Classmates Media revenues, for the year ended December 31, 2007, compared to $60.7 million, or 43.6% of
Classmates Media revenues, for the year ended December 31, 2006. A portion of the increase was related to sales and marketing expenses
associated with our loyalty marketing service, which we acquired in April 2006 and which was included in our results of operations for the full
year ended December 31, 2007 compared to only 266 days for the year ended December 31, 2006. Sales and marketing expenses associated with
our loyalty marketing service increased by $9.5 million in the year ended December 31, 2007 when
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