Pandora 2012 Annual Report Download - page 81
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Table of Contents
Pandora Media, Inc.
Notes to Consolidated Financial Statements - Continued
The Company has elected to use the "with and without" approach as described in Accounting Standards Codification 740 Tax Provisions in determining
the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital
if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has
elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through the statement of operations.
Cost of Revenue
Cost of revenue consists of the infrastructure costs related to content streaming, maintaining the Company's service and creating and serving
advertisements through third party ad serving technology providers, including the employee costs associated with supporting these functions. The Company
makes payments to third-party ad servers for the period the advertising impressions or click-through actions are delivered or occur, and accordingly, the
Company records this as a cost of revenue in the related period.
Product Development
The Company incurs product development expenses consisting of employee compensation, information technology, consulting, facilities-related
expenses and costs associated with supporting consumer connected-device manufacturers in implementing its service in their products. The Company incurs
product development expenses primarily for improvements to its website, the Pandora app, development of new advertising products and development and
enhancement of the Music Genome Project and infrastructure costs such as facility and other overhead costs. The Company generally expenses product
development costs as incurred, but as of January 31, 2012, the Company had incurred and capitalized approximately $100,000 related to internal use software
and website development costs.
Marketing and Sales
Marketing and sales expenses consist of employee and employee-related costs including salaries, commissions and benefits related to employees in
sales, marketing and advertising departments. In addition, marketing and sales expenses include external sales and marketing expenses such as third-party
marketing, branding, advertising and public relations expenses, and infrastructure costs such as facility and other supporting overhead costs. Advertising
expenses are expensed as incurred. Total advertising expenses incurred were $ 0.6 million, $3.0 million and $6.9 million for the years ended January 31, 2010,
2011 and 2012, respectively.
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