Incredimail 2012 Annual Report Download - page 44

Results of Operations
The following table sets forth, for the periods indicated, our statements of operations 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 generally characterized by high gross profit margins, which are attributable mainly to
two factors: (i) we do not have manufacturing costs for our products, and (ii) our search generated revenues have virtually no direct cost
associated with them. Starting the second half of 2011, we dramatically increased our investment in customer acquisition costs to fuel future
growth. These expenses increased from $8.1 million in 2011 to $22.1 million in 2012. This was the primary reason for the increase in selling and
marketing expenses in 2012, both nominally and as a percentage of sales, resulting in lower operating and net income margins in 2011. We
expect to further increase our customer acquisition costs in 2013, increasing our sales and marketing expenses. In addition, general and
administrative expenses included expenses related to the acquisition of subsidiaries of $1.1 million and $2.1 million in 2011 and 2012,
respectively. However, as a result of these acquisitions, we expect increased revenues and improved operating margins in 2013.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues.
Revenues increased by 70% in 2012, from $35.5 million in 2011 to $60.2 million in 2012. This increase was a result of
increases in each of our revenue streams. Although we expect continued growth in 2013 in all revenue streams, we expect such growth to be
driven substantially by search generated revenues as a result of the recent acquisition of SweetPacks, which was focused on search, and as we
increase significantly the investment in customer acquisition.
Search revenues
. Search revenues increased by 49% in 2012, from $25.5 million in 2011 to $38.1 million in 2012. This increase was
due to an increase in the number of downloads and subsequently the number of users using our search service. We offer our search service in
conjunction with our products and toolbar, with Google currently powering the search service for ostensibly all our users. In addition, our
SweetIM acquisition contributed one month of search revenues from the acquired company in 2012. On January 31, 2013, we signed an
amendment to our agreement with Google extending the term of the agreement to May 31 2013, to coincide with the expiration date of the
agreement between SweetIM and Google. On April 23, 2013, we entered into a new agreement with Google, effective from May 1, 2013 to
April 30, 2015. The new agreement combines the activities of Perion and SweetIM into one agreement and replaces both of the existing
agreements with Google. We expect our search revenues to continue to grow as we increase our marketing expenses in general and customer
acquisition costs in particular.
Year Ended December 31,
2010
2011
2012
Revenues:
Search
77
%
72
%
63
%
Products
19
20
29
Other
4
8
8
Total revenues
100
%
100
%
100
%
Cost of revenues
5
8
9
Gross profit
95
92
91
Operating expenses
Research and development, net
23
21
18
Selling and marketing
18
37
49
General and administrative
16
22
14
Total operating expenses
57
80
81
Operating income
38
12
10
Financial income, net
1
4
0
Income before taxes on income
39
16
10
Income tax expense
11
-
4
Net income
28
%
16
%
6
%
38