Enom 2013 Annual Report Download - page 61

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Beginning July 1, 2011, the number of net new domains has been adjusted to include only new registered domains added to our platform
for which we have recognized revenue. Excluding the impact of this change, end of period domains at December 31, 2012 would have increased
13% compared to the prior year and average revenue per domain during the year ended December 31, 2012 would have decreased 4% compared
to the prior year, primarily due to the acquisitio n of Name.com on December 31, 2012 for which we did not recognize any revenue in 2012.
Cost and Expenses
Operating costs and expenses were as follows (in thousands):
Service Costs
2013 compared to 2012.
Service costs for the year ended December 31, 2013 increased by approximately $23.7 million, or 13%, to $204.8
million compared to $181.0 million in the same period in 2012. The increase was primarily due to a $13.1 million increase in domain registry
fees and registrar costs associated with our growth in domain registrations and related revenue over the same period and the acquisition of
Name.com in December 2012, a $3.7 million increase in personnel related costs, including stock
-
based compensation, a $10.1 million increase in
product costs due to the Society6 acquisition, a $2.1 million increase primarily driven by ad serving costs and a $0.9 million increase in
information technology expense to support growth in our business. These factors were partially offset by a $3.3 million decrease in content
related expenses primarily associated with our YouTube Channels agreement and a $3.5 million decrease in TAC.
2012 compared to 2011.
Service costs for the year ended December 31, 2012 increased by approximately $25.2 million, or 16%, to $181.0
million compared to $155.8 million in the same period in 2011. The increase was largely due to a $15.0 million increase in domain registry fees
associated with our growth in domain registrations and related revenue over the same period, a $6.9 million increase in traffic acquisition costs
primarily related to the acquisition of IndieClick in August 2011, a $3.6 million increase in content and related costs including premium video, a
$1.5 million increase in related information technology expense and a $0.9 million increase in personnel and related costs due to increased head
count. These increases were partially offset by a $1.6 million decrease in depreciation expense of technology assets purchased in the prior and
current periods that are used to manage our Internet traffic, data centers, advertising transactions and domain registrations.
Sales and Marketing
2013 compared to 2012. Sales and marketing expenses slightly decreased by $0.1 million, to $46.4 million for the year ended
December 31, 2013 from $46.5 million for the same period in 2012. There was a decrease of $1.4 million in marketing and consulting activities,
offset by an increase in expense of $1.3 million driven by increased personnel related costs, including stock-based compensation expense, due to
the Name.com, Society6 and Creativebug acquisitions, and growth in our advertising sales teams.
2012 compared to 2011. Sales and marketing expenses increased 24%, or $9.1 million, to $46.5 million for the year ended December 31,
2012 from $37.4 million for the same period in 2011. The increase was primarily due to our direct sales and marketing efforts in 2012 and
acquisit ion of IndieClick in August 2011 and included a $4.1 million increase in personnel related costs, including stock-based compensation
expense and sales commissions and $4.9 million related to expansion of marketing and promotional activities to support growth in our Content
and Media business. Stock-based compensation expense in 2012 included $0.3 million incremental expense related to the early termination of a
warrant issued in 2011 as part of the website development, endorsement and license agreement with Bankable Enterprises, Inc.
59
Year ended December 31,
% Change
2013
2012
2011
2013 to 2012
2012 to 2011
Service costs (exclusive of amortization of
intangible assets)
$
204,763
$
181,018
$
155,830
13
%
16
%
Sales and marketing
46,445
46,501
37,394
0
%
24
%
Product development
44,187
40,708
38,146
9
%
7
%
General and administrative
73,277
63,025
59,451
16
%
6
%
Amortization of intangible assets
44,409
40,676
47,174
9
%
-
14
%