Yahoo 1998 Annual Report Download - page 30

unconsolidated joint venture of the Company that began operations in April 1996,
is included in these page views figures and accounted for an average of approxi-
mately 13 million per day in December 1998, an average of approximately
5 million per day in December 1997, and an average of approximately 1.4 million
per day in December 1996. The Company anticipates that its content and Internet
connection expenses will continue to increase in absolute dollars for the foresee-
able future. The Company currently anticipates cost of revenues will be in the
range of 10% to 13% of net revenues for 1999, however, anticipated spending levels
may vary as a result of acquisitions and future business combinations.
Sales and Marketing. Sales and marketing expenses were $92.4 million for the year
ended December 31, 1998, or 45% of net revenues. For the years ended December
31, 1997 and 1996, sales and marketing expenses were $45.8 million and $16.2
million, or 65% and 75% of net revenues, respectively. Sales and marketing
expenses consist primarily of advertising and other marketing related expenses
(which include distribution costs), compensation and employee-related expenses,
sales commissions, and travel costs. The year-to-year increases in absolute dollars
are primarily attributable to an increase in advertising and distribution costs
associated with the Company’s aggressive brand-building strategy, increases in
compensation expense associated with growth in its direct sales force and market-
ing personnel, expansion in the international subsidiaries with the addition of
subsidiaries in Germany, France, and the United Kingdom during 1996, Sweden,
Australia, Singapore, Korea, Denmark, and Norway during 1997, and Italy, Hong
Kong, and Spain as well as Yahoo! guides in Spanish and Mandarin Chinese
languages during 1998, and an increase in sales commissions associated with the
increase in revenues. The Company anticipates that sales and marketing expenses
in absolute dollars will increase in future periods as it continues to pursue an
aggressive brand-building strategy through advertising and distribution, continues
to expand its international operations, and continues to build its global direct
sales organization. As a percentage of net revenues, the Company currently antici-
pates that sales and marketing expenses will be in the range of 40% to 43% for
1999, however, anticipated spending levels may vary as a result of acquisitions
and future business combinations.
Product Development. Product development expenses were $22.7 million, or 11% of
net revenues for the year ended December 31, 1998 compared to $12.1 million and
$5.7 million, or 17% and 27% of net revenues for the years ended December 31, 1997
and 1996, respectively. Product development expenses consist primarily of
employee compensation relating to developing and enhancing the features and
functionality of Yahoo! online media properties. The year-to-year increases in
absolute dollars are primarily attributable to increases in the number of engineers
that develop and enhance Yahoo! online media properties. To date, all internal
product development costs have been expensed as incurred. The Company believes
that significant investments in product development are required to remain
competitive. Consequently, the Company expects to incur increased product devel-
opment expenditures in absolute dollars in future periods. As a percentage of net
revenues, the Company currently anticipates that product development expenses
will range from 10% to 12% during 1999, however, anticipated spending levels may
vary as a result of acquisitions and future business combinations.
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