Shutterfly 2009 Annual Report Download - page 53

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Our technology and development expense increased $10.8 million, or 38%, in 2008 compared to 2007. As a percentage of net revenues,
technology and development expense increased from 15% in 2007 to 18% in 2008. The overall increase in technology and development expense
was attributable to increased personnel and related costs for employees and consultants involved with website development and website
infrastructure support teams, which totaled $3.7 million. Depreciation expense also increased by $3.7 million as we continued to invest in our
website infrastructure hardware to support our continued revenue growth. Stock-
based compensation expense increased by $1.3 million in 2008
compared to 2007. Facility related costs increased by $2.3 million compared to 2007, due to our expansion to a new colocation hosting site
which resulted in higher networking, power and storage costs during fiscal year 2008. And, in 2008, we capitalized $4.7 million in eligible
website development costs compared to $3.1 million in 2007.
Our sales and marketing expense increased $8.6 million, or 26%, in 2008 compared to 2007. Also as a percentage of net revenues, total
sales and marketing expense increased from 18% in 2007 to 20% in 2008. In 2008, we expanded our online media and direct response
marketing campaigns and incurred increased agency fees for creative and branding promotions which represented a $5.0 million increase
compared to 2007. We also expanded our internal marketing team resulting in an increase in personnel and related costs of $2.2 million. In
addition, stock-based compensation expense increased $1.3 million to $2.2 million in 2008, compared to $0.9 million in 2007.
Our general and administrative expense increased $2.6 million, or 9%, in 2008 compared to 2007, and decreased as a percentage of net
revenues from 16% in 2007 to 15% in 2008. Personnel and related costs increased by $2.0 million in 2008, reflecting increased hiring. Stock
based compensation also increased by $1.9 million compared to 2007. Office related costs increased by $1.1 million compared to 2007, as we
expanded our corporate office space during 2008. Offsetting general and administrative expenses in 2008, are installment payments from two
multi-million dollar cross-
licensing agreements for intellectual property entered into with two different companies. Both agreements require
multiple installments with the first installments received during 2008 from both parties. We expect to recognize the remaining installments
under the agreements as the amounts are received on the scheduled due dates. In addition, fees to consultants and contractors decreased by
approximately $1.0 million due primarily to efficiencies from our Sarbanes-
Oxley compliance efforts. In 2008, we capitalized $1.3 million in
internally developed software related to our newly implemented enterprise resource planning system.
Year Ended December 31,
2008
2007
$ Change
% Change
(In thousands)
Technology and development
$39,443
$28,635
$ 10,808
38%
Percentage of net revenues
18%
15%
—
—
Sales and marketing
$41,958
$33,363
$ 8,595
26%
Percentage of net revenues
20%
18%
—
—
General and administrative
$32,192
$29,557
$ 2,635
9%
Percentage of net revenues
15%
16%
—
—
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