ServiceMagic 2011 Annual Report Download - page 40

Download and view the complete annual report

Please find page 40 of the 2011 ServiceMagic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

Segment Results
In addition to the discussion of consolidated results above, the following is a discussion of the results of each segment.
Search
Our Search segment includes Mindspark, a digital consumer products business consisting of our B2C operations, through which we
develop, market and distribute downloadable applications, and our B2B operations, through which we provide customized browser-based
applications for software and media companies; destination websites, including Ask.com and Dictionary.com, through which we provide search
and additional services; and CityGrid Media, an online media company that aggregates and integrates local content and advertising for
distribution to publishers across web and mobile platforms.
For the year ended December 31, 2011 compared to the year ended December 31, 2010
Revenue increased 31% to $1.1 billion, reflecting strong growth from Mindspark's B2B operations and destination websites as well as
growth from Mindspark's B2C operations and CityGrid Media. The revenue growth in Mindspark's B2B operations was driven by increased
contribution from both existing and new partners. The increase in Mindspark's B2C revenue was driven primarily by new products launched
since the year ago period. The revenue growth in destination websites reflects strong query gains driven primarily by increased marketing and
content optimization. The increase in revenue at CityGrid Media primarily reflects growth from existing resellers and increased display
advertising.
Operating Income Before Amortization increased 62% to $203.1 million, benefiting from the higher revenue noted above and decreases of
$8.5 million in depreciation, $7.1 million in general and administrative expense and lower product development expense as a percentage of
revenue, partially offset by increases of $115.3 million in traffic acquisition costs and $63.7 million in selling and marketing expense. The
decrease in depreciation is due to the write-off of certain assets in the prior year period, partially offset by the write-off of $4.9 million in
capitalized software costs in the third quarter of 2011 associated with the exit from our direct sponsored listings business. The decrease in
general and administrative expense is primarily due to lower professional fees, including a decrease in litigation related expenses, and the
inclusion in 2010 of lease termination costs associated with the Ask.com restructuring, partially offset by an increase in compensation and other
employee-related costs at Mindspark and CityGrid Media. As a percentage of revenue, product development expense decreased primarily due to
staff reductions that took place during the fourth quarter of 2010. The increase in traffic acquisition costs is primarily due to an increase in
revenue. As a percentage of revenue, traffic acquisition costs increased over the prior year period due to an increase in the proportion of revenue
from customized browser-based applications at Mindspark's B2B operations and other arrangements with third parties who direct traffic to our
websites. The increase in selling and marketing expense is primarily due to an increase in advertising and promotional expenditures, partially
offset by a decrease in bad debt expense at CityGrid Media. The increase in advertising and promotional expenditures was driven primarily by
increased online marketing related to our destination websites and new product launches at Mindspark's B2C operations since the year ago
period.
Operating income increased 79% to $201.7 million, primarily due to the increase in Operating Income Before Amortization described
above and a decrease of $10.9 million in amortization of intangibles and a slight decrease in non-cash compensation expense. The decrease in
amortization of intangibles in 2011 is principally due to the inclusion in the prior year of an indefinite-lived intangible asset impairment charge
of $11.0 million as described below.
37