Incredimail 2014 Annual Report Download - page 47

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Revenues.
Revenues increased by 19%, from $325.5 million in 2013, to $388.7 million in 2014. This increase was a result of increases
in each of our revenue streams, as discussed below:
Search revenues
. Search revenues increased by 19% in 2014, from $277.3 million in 2013, to $330.8 million in 2014. This increase
was due to an increase in the number of downloads and consequently the number of users using our search service. This increase is attributable
to organic growth, as well as the acquisition of Perion’s activity, which too was based on search-generated revenues. In 2013, Perion’
s search
revenues were $59.0 million. The year over year growth occurred entirely in the first half of 2014, when we recorded search-
generated revenues
of $189.3 million, increasing 38% over the first half of 2013. In the second half of 2014, with the reduced level of visibility regarding the future
revenues from newly acquire users, we drew back on our customer acquisition costs and revenues declined, with search-
generated revenues
totaling $68.1 million in the fourth quarter of 2014, reflecting a 4% decrease as compared to the fourth quarter of 2013. We expect search-
generated revenues to continue and be our main source of revenues in 2015. Since we continue to lack visibility regarding future revenues from
acquired users, we expect to maintain this lower level of customer acquisition costs and therefore expect a continued decline in revenues going
into 2015.
Advertising and other revenues
. Advertising and other revenues increased by 20% in 2014, from $48.2 million in 2013 to $58.0 million
in 2014. This increase is primarily attributable to the acquisition of Perion’s activity, its products and advertising revenues. In 2013, Perion’
s
product and other revenues were $28.1 million. In addition the increase was due to display advertising revenues that are to a great extent
dependent on the distribution being done for search-
generated revenues. This increase was partially offset by a decrease resulting from certain
policy changes associated with the distribution of toolbars, causing us to discontinue one of our toolbar marketing venues. As with search
generated revenues, the increase in these other revenues was attributable to the first half of the year, when such revenues totaled $35.0 million,
an increase of 51% over the first half of 2013, while in the second half of 2014, with the decrease in customer acquisition costs, such revenues
decreased as well, with a 23% decrease in the fourth quarter of 2014, from $13 million in the fourth quarter of 2013 to $10.0 million, in the
fourth quarter of 2014. Therefore, as with the continued trend in search-
generated revenues, we expect these revenues to decline somewhat from
this level in 2015.
The following table shows costs and expenses by category (in thousands of U.S. dollars):
Cost of revenues
. Cost of revenues in 2014 was $27.8 million, as compared to $6.1 million in 2013, representing an increase of 356 %.
The increase is primarily attributable to amortization of intangible assets of $15.7 million due to acquisitions, as well as the cost of revenues for
Perion’s legacy business recorded in 2014 and not included in 2013. In 2013, Perion’
s cost of revenues were $11.4 million. The increase in
amortization expenses caused the gross profit margin to decrease from 98% in 2013 to 93% in 2014.
Customer acquisition costs (“CAC”).
CAC amounted to $174.6 million in 2014, compared to $185.4 million in 2013, representing a
decrease of 6%. This decrease was entirely in the second half of 2014, when CAC amounted to $59.0 million, reflecting a 43% decrease
compared to the second half of 2013. Our reduced level of investment was in light of our not having sufficient visibility to ensure a positive
return on this investment, and as a result, our decision to engage higher margin software developing partners. As we continue to lack visibility
regarding future returns on these investments, we expect to maintain this reduced level of investment in CAC in 2015.
Year ended December
31,
2013
2014
Cost of revenues
$
6,104
$
27,817
Customer acquisition costs
185,355
174,575
Research and development
22,394
44,129
Selling and marketing
10,298
25,388
General and administrative
19,115
37,605
Impairment and restructuring charges
-
23,922
Total costs and expenses
$
243,266
$
333,436
42