Enom 2011 Annual Report Download - page 49

recognized revenue. Excluding the impact of this change, end of period domains at December 31, 2011 would have increased 22% and average revenue per
domain during the year ended December 31, 2011 would have decreased 2%, each compared to the corresponding prior-year periods. In the near term, we
anticipate our average revenue per domain to continue to fluctuate as a result of the large volume customers added in 2011 and certain registry price increases
in early 2012. Due in part to the higher mix of large volume customers as we enter 2012 as compared to 2011, we also expect that our overall service costs as
a percentage of our total revenue will increase when compared to our historical results.
The Internet Corporation for Assigned Names and Numbers, or ICANN has approved a framework for the significant expansion of the number of
generic Top Level Domain "TLDs", or "gTLDs" in 2012. We believe that such expansion, once completed, will result in an increase in the number of domains
registered on our platform in 2013. In addition, we believe that the New gTLD Program could also provide us with new revenue opportunities in 2013, which
include operating the back-end infrastructure for new TLD registries and/or owning one or more TLDs in our own right. In preparation for the New gTLD
Program, we also expect to incur up to $5 million of operating expenses in 2012.
Our service costs, the largest component of our operating expenses, can vary from period to period, particularly as a percentage of revenue, based upon
the mix of the underlying Content & Media and Registrar services revenues we generate. In the near term and consistent with historical trends, we expect that
the period-over-period growth in our Content & Media revenue will continue to exceed the growth in our Registrar revenue, which would typically provide
for higher operating margins. We expect that service costs will increase in 2012 compared to 2011 in line with revenue growth and also due to our new
premium multi-channel initiative with YouTube as well the impact of our acquisition of IndieClick. We believe that these factors, together with costs
associated with our investment in new business initiatives in 2012, including our preparation for new gTLDs becoming available for registration in 2013, will
result in our operating margin in 2012 being fairly consistent with 2011.
Our content studio identifies and creates online text articles and videos through a community of freelance creative professionals and is core to our
business strategy and long-term growth initiatives. Historically, we have made substantial investments in our platform to support our expanding community of
freelance creative professionals and the growth of our content production and distribution and expect to continue to make such investments. As we develop
new content formats, we may not be able to attract and retain qualified creative professionals to produce such new content at scale, which may adversely
impact our ability to execute against emerging business opportunities or retain existing content creators.
For the year ended December 31, 2011, more than 90% of our revenue has been derived from websites and customers located in the United States. While
our content is primarily targeted towards English-speaking users in the United States today, we believe that there is an opportunity in the longer term for us to
create content targeted to users outside of the United States and thereby increase our revenue generated from countries outside of the United States. We plan
to further expand our operations internationally to address this opportunity, including through our recent acquisition of a Latin American language content
creation company in July 2011 and the launch of eHow en Español and eHow Brasil in the second half of 2011. As we expand our business internationally,
we may incur additional expenses associated with this growth initiative.
Basis of Presentation
Revenue
Our revenue is derived from our Content & Media and Registrar service offerings.
Content & Media Revenue
We currently generate the vast majority of our Content & Media revenue through the sale of advertising, and to a lesser extent through subscriptions to
our social media applications and licensing and sales of select content and service offerings. Our revenue generating advertising arrangements, for both our
owned and operated websites and our network of customer websites, include cost-per-click performance-based advertising; display advertisements where
revenue is dependent upon the number of page views; and lead generating advertisements where revenue is dependent upon users registering for, or
purchasing or demonstrating interest in, advertisers’ products and services. We generate revenue from advertisements displayed alongside our content offered
to consumers across a broad range of topics and categories on our owned and operated websites and on certain customer websites. Our advertising revenue
also includes revenue derived from cost-per-click advertising links we place on undeveloped websites owned both by us, which we acquire and sell on a
regular basis, and certain of our customers. To a lesser extent, we also generate revenue from our subscription-based offerings, which include our social media
applications deployed on our network of customer websites and subscriptions to premium content or services offered on certain of our owned and operated
websites.
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