These non‐GAAP financial measures differ from GAAP in that they include an effect on revenue relating to our subscription return reserve, which consists of deferred revenue related to subscriptions that are sold with return rights and exclude expense from stock‐based compensation and amortization of intangible assets.
The subscription return reserve consists of revenue that we defer on a GAAP basis because we have limited operating history with certain mobile subscription refund rights. We are required to defer revenue until the refund rights lapse or until we have developed sufficient transaction history to estimate a reserve. The subscription return reserve is excluded from the subscription services and other revenue line of our GAAP presentation. The subscription return reserve is expected to be released in January 2014 when sufficient transaction history is developed and a return reserve can be estimated. For periods ending as of and prior to January 2014, management includes an effect on revenue relating to our subscription return reserve because we believe that this non‐GAAP measure will provide greater comparability with future GAAP revenue.
Stock‐based compensation consists of expenses for stock options and other awards under our equity incentive plans. Stock‐based compensation is included in the following cost and expense line items of our GAAP presentation:
- Cost of revenue ‐ Other
- Product development
- Sales and marketing
- General and administrative
Although stock‐based compensation is an expense for us and is viewed as a form of compensation, management excludes stock‐based compensation from our non‐GAAP measures for purposes of evaluating our continuing operating performance primarily because it is a non‐cash expense not believed by management to be reflective of our core business, ongoing operating results or future outlook. In addition, the value of stock‐based instruments is determined using formulas that incorporate variables, such as market volatility, that are beyond our control.
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