Incredimail 2010 Annual Report Download - page 39

Recently issued accounting pronouncements.
See Item 18. Financial Statements. Note 2(u).
The following table sets forth, for the periods indicated, our statements of income expressed as a percentage of total revenues (the
percentages may not equal 100% because of the effects of rounding):
As shown in the above table, our operations are characterized by high margins, which are attributable mainly to two factors: (i) we do
not have manufacturing costs for our products, and (ii) we sell our products online and rely primarily on viral marketing. Our operating margins
decreased in 2010, in comparison to 2009 primarily as a result of our enhancing our management capabilities and hiring of experienced
professionals capable of scaling our profitable model and growing the business organically and non-
organically. We expect to increase our
customer acquisition costs dramatically in 2011, increasing our sales and marketing expenses, and reducing operating margin in 2011. While
increasing our customer acquisition costs is a long-
term strategy, as we ramp up this expense, we expect it to have a more negative effect in
2011, and less so in future years, and we expect the operating margins to improve in 2012 and beyond, compared to 2011.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues from advertising, primarily search, and other services
. These revenues increased by 17%, from $20.5 million in 2009, to
$24.0 million in 2010. The increase in revenues was due to a $2.8 million increase in search generated revenues and a $0.8 million increase in
other advertising and other revenues. In 2010 we continued to collaborate with two search providers; with approximately 90% of search
generated revenues being provided by our partnership with Google and the remaining 9% coming from other search providers, primarily
InfoSpace. The continued increase in search generated revenues reflects the success of our strategy to leverage our large user base, primarily
those using our free products. In 2011, as we implement our strategy for growth and invest in customer acquisition, we expect to accelerate the
growth coming from these revenues. In 2010, we were not successful in increasing HiYo registrations and revenues, and this product while still
generating revenues, no longer constitutes a product that we are focused on. As to PhotoJoy, while we now have completed a marketable
product, we expect that through our customer acquisition strategy, this product will start attracting a significant number of downloads, and
subsequently generate revenues in the latter part of 2011. We expect to be able to continue and grow other revenues, albeit they still are not
expected to contribute a significant portion of our revenues in 2011.
Revenues from product
s. These revenues continued to decrease from $6.7 million in 2009 to $5.4 million in 2010. We believe this
decrease is attributable to our continued focus on search generated revenues, as well as the decreasing popularity in purchasing downloadable
software and the effect of the economic downturn in 2009 had on discretionary purchases. In the latter part of 2010, we saw this trend level out,
with new product sales increasing. As we increase our marketing efforts in this area in 2011, we can expect cash sales from products to
increase. However, the increase in accounting revenues recorded according to US GAAP, will be delayed as these revenues are for the most part
deferred over the period of their subscriptions.
Year Ended December 31,
2008
2009
2010
Revenues from advertising, primarily search, and other services
58
%
74
%
82
%
Revenues from products
42
26
18
Revenues, net
100
%
100
%
100
%
Cost of revenues
8
6
5
Gross profit
92
94
95
Operating expenses
Research and development costs
35
23
22
Selling and marketing expenses
34
17
18
General and administrative expenses
17
12
16
Goodwill impairment and other charges
5
-
-
Total operating expenses
91
52
56
Operating income
1
42
39
Financial income, net
21
-
1
Income before taxes on income
22
42
40
Income tax expense
1
13
11
Net income
21
%
29
%
29
%
32