Enom 2013 Annual Report Download - page 52

Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The
preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimate s are based
on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ
from these estimates.
We believe that the assumptions and estimates associated with our revenue recognition, accounts receivable and allowance for doubtful
accounts, capitalization and useful lives associated with our intangible assets, including our internal software and website development and
content costs, income taxes, stock-based compensation and the recoverability of our goodwill and long-lived assets including our media content
portfolio and gTLD applications, have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be
our critical accounting policies and estimates.
Revenue Recognition
We recognize revenue when four basic criteria are met: persuasive evidence of a sales arrangement exists; performance of services has
occurred; the sales price is fixed or determinable; and collectability is reasonably assured. We consider persuasive evidence of a sales
arrangement to be the receipt of a signed contract. Collectability is assessed based on a number of factors, including transaction history and the
credit worthiness of a customer. If it is determi ned that collection is not reasonably assured, revenue is not recognized until collection becomes
reasonably assured, which is generally upon receipt of cash. We record cash received in advance of revenue recognition as deferred revenue.
For arrangements with multiple deliverables, we allocate revenue to each deliverable if the delivered item(s) has value to the customer on
a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the
undelivered item(s) is considered probable and substantially in our control. The fair value of the selling price for a deliverable is determined
using a hierarchy of (1) Company specific objective and reliable evidence, then (2) third-party evidence, then (3) best estimate of selling price.
We allocate any arrangement fee to each of the elements based on their relative selling prices.
Our revenue is principally derived from the following services:
Content & Media
Advertising Revenue . Advertising re venue is generated by performance-based Internet advertising, such as cost-per-click ("CPC")
advertising, in which an advertiser pays only when a user clicks on their advertisement that is displayed on our owned and operated websites and
customer websites; fees generated by users viewing third-party website banners and text-link advertisements; fees generated by enabling
customer leads or registrations for partners; and fees from referring users to, or from users making purchases on, sponsors’ websites. In
determining whether an arrangement exists, we ensure that a binding arrangement is in place, such as a standard insertion order or a fully
executed customer-specific agreement. Obligations pursuant to our advertising revenue arrangements typically include a minimum number of
impressions or the satisfaction of the other performance criteria. Revenue from performance-based arrangements, including referral revenue, is
recognized as the related performance criteria are met. We assess whether performance criteria have been met and whether the fees are fixed or
determinable based on a reconciliation of the performance criteria and an analysis of the payment terms associated with the transaction. The
reconciliation of the performance criteria generally includes a comparison of third-party performance data to the contractual performance
obligation and to internal or customer performance data in circumstances where that data is available.
Where we enter into revenue sharing arrangements with our customers, such as those relating to advertising on our customers' domains,
and when we are considered the primary obligor, we report the underlying revenue on a gross basis in our consolidated statements of operations,
and record these revenue-sharing payments to our customers as revenue-sharing expenses, which are included in service costs. In circumstances
where the customer acts as the primary obligor, we recognize the underlying revenue on a net basis.
In certain cases, we record revenue based on available and preliminary information from third parties. Amounts collected on the related
receivables may vary from reported information based upon third party refinement of estimated and reported amounts owing that occurs
typically within 45 days of the period end.
Subscription Services and Social Media Services
. Subscription services revenue is generated through the sale of membership fees paid
to access content available on certain of our owned and operated websites. The majority of the memberships range from 6 to 12 month terms.
Subscription services revenue is recognized on a straight-line basis over the membership term.
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