Three Months Ended September 30,			Nine Months Ended September 30,
		2007	2006		2007	2006
Weighted average fair value		$21.55	$17.53		$27.90	$20.90
Expected volatility		60.4%	66.1%		58.1%	69.7%
Weighted average risk free rate		4.0%	4.8%		4.9%	4.7%
Expected lives		4.75 years	4.75 years		4.75 years	4.75 years
Expected dividend yield		0%	0%		0%	0%

 

The share-based compensation expense for stock options and restricted stock awards recognized in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2007 and 2006 is as follows:

		Three Months Ended September 30,						Nine Months Ended September 30,
Income Statement Classifications		2007			2006			2007			2006
Cost of revenue:
Online publishing		$	570,772		$	289,546		$	1,420,922		$	786,542
Print publishing and licensing			39,526			39,984			120,141			107,806
Other expenses:
Sales			487,420			215,980			861,430			543,017
Marketing			198,189			-			439,569			-
Product development			243,576			111,644			563,674			358,276
General and administrative			2,072,845			1,085,803			4,419,838			4,909,811
Total		$	3,612,328		$	1,742,957		$	7,825,574		$	6,705,452

 

Pursuant to the income tax provisions of SFAS No. 123R, the Company follows the “long-haul method” of computing its hypothetical additional paid-in capital, or APIC, pool. As of September 30, 2007, there was approximately $20.8 million of unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options, which will be recognized over a weighted average period of approximately 2.71 years. Additionally, as of September 30, 2007, there was approximately $5.6 million of unrecognized compensation expense related to restricted stock awards which will be amortized over a weighted average 1.89 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures, and for restricted stock awards, changes in the weighted average expected time to vest.

 

General Stock Option Information

The following table sets forth the summary of option activity under the Company’s stock option plans for the nine months ended September 30, 2007:

		Number of Shares			Price Per Share			Weighted Average Exercise Price			Aggregate Intrinsic Value
Balance, December 31, 2006			2,749,590			$0.85 to $47.47		$	17.08
Granted			422,500			$27.26 to 40.11		$	34.25
Exercised			(219,742	)		$0.85 to $37.70		$	17.50
Forfeited			(139,577	)		$12.63 to $38.43		$	28.12
Expired			-			-			-
Balance, September 30, 2007			2,812,771			$0.85 to $47.47		$	19.08		$	76,061,000

 

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The total intrinsic value of stock options exercised during the nine months ended September 30, 2007, was approximately $5,856,000. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the stock options. The aggregate intrinsic value of stock options outstanding as of September 30, 2007 is calculated as the difference between the market value at September 30, 2007 ($46.12) and the exercise price of the stock options.

Additional information with respect to outstanding stock options as of September 30, 2007, was as follows:

		Options Outstanding						Options Exercisable
Prices		Number of Shares			Weighted Average Remaining Contractual Life (Years)			Number of Shares			Average Exercise Price			Aggregate Intrinsic Value
$0.85			32,500			2.10			32,500		$	0.85
$1.75 to $8.46			831,642			3.91			800,391		$	7.65
$10.01 to $12.63			589,897			3.99			552,231		$	10.24
$13.00 to $18.44			310,446			3.87			196,238		$	15.30
$26.98 to $32.75			458,813			5.66			112,605		$	29.65
$35.75 to $47.47			589,473			5.87			108,538		$	39.19
			2,812,771			4.60			1,802,503		$	12.43		$	60,729,000

 

NOTE 4 - INCOME TAXES

The change in the Company’s effective tax rate in the three and nine months ended September 30, 2007 compared to the three and nine months ended September 30, 2006 was due primarily to the tax effects of incentive stock option grants and disqualifying dispositions of incentive stock options.

The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109, on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards 5, Accounting for Contingencies. As required by FIN No. 48, which clarifies Statement 109, Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of Interpretation 48, the Company did not recognize a change in the liability for unrecognized tax benefits.

There were no unrecognized tax benefits as of January 1, 2007, and there have been no material changes in unrecognized tax benefits through September 30, 2007.

The Company is subject to income taxes in the U.S. federal jurisdiction, various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2003.

 

There are no accruals for the payment of interest and penalties at September 30, 2007. The Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

On July 20, 2007, BanxCorp, a privately held company located in White Plains, New York, filed a complaint against the Company in the United States District Court for the District of New Jersey. The complaint alleges that the Company has engaged in a plan of misconduct that has unreasonably restrained trade and substantially lessened competition in the marketplace, thereby monopolizing trade and commerce. BanxCorp alleges that the Company has engaged in predatory pricing, vendor lock-in, exclusionary  product and distribution bundling and tie-in arrangements, anticompetitive acquisitions and market division agreements.

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The action brought by the complaint is for unspecified equitable and monetary relief under the Sherman and Clayton Acts, including treble damages, and under state statutes, including the New Jersey Antitrust Act.

The Company believes that the allegations in the complaint are without merit and intends to vigorously defend against them. On October 19, 2007, the Company filed a motion for dismissal. Because the outcome of the suit is uncertain at this time, the Company cannot estimate the amount of loss, if any, that could result from an adverse resolution of this matter.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operation and should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report.  The MD&A is divided into subsections entitled "Business Overview," "Critical Accounting Estimates," "Results of Operations and Critical Accounting Policies," "Liquidity and Capital Resources," and "Off-Balance Sheet Arrangements."

 

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the “Introductory Note” and Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, and as updated in the Company’s subsequent quarterly reports filed on Form 10-Q, and in our other filings made from time to time with the SEC after the date of this Quarterly Report.

However, other factors besides those referenced could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us herein speak as of the date of this Quarterly Report. We do not undertake to update any forward-looking statement, except as required by law.

Business Overview

Bankrate, Inc. and it subsidiaries (the “Company,” “Bankrate,” “we,” “us,” or “our”) own and operate an Internet-based consumer banking and personal finance network. Our flagship site, Bankrate.com, is one of the web's leading aggregators of information on more than 300 financial products and fees, including mortgages, credit cards, new and used automobile loans, money market accounts, certificates of deposit, checking and ATM fees, home equity loans and online banking fees. Additionally, we provide financial applications and information to a network of online distribution partners and national, regional and local publications. Through our online network (“Online Network”) which includes Bankrate.com, Interest.com, Mortgage-calc.com and Bankrateselect.com, as well as co-branded web sites hosted by our network of online distribution partners, we provide the tools and information that can help consumers make better financial decisions.

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We also produce traditional print publications, including the Mortgage Guide and the  Deposit Guide , as well as three newsletters. We also syndicate our original editorial content to major print publications such as The Wall Street Journal, The New York Times, USA Today and others.

 

We believe we have a high quality, in-market audience that is valuable to our advertisers. Bankrate.com is one of the top sites for financial information and advice according to comScore Media Metrix. We sell graphic advertisements and hyperlinks on our Online Network, publish rates and sell advertisements in metropolitan newspapers, and we license our rates and editorial content.

We regularly survey approximately 4,800 financial institutions in more than 575 local markets in all 50 states in order to provide the most current objective, unbiased information. Hundreds of print and online partner publications depend on us as the trusted source for financial rates and information.

We believe that the recognition of our research as a leading source of independent, objective information on financial products is a key component of our success. As a result, we have sought to maximize distribution of our research to gain brand recognition as a research authority. We are seeking to build greater brand awareness of our Online Network and to reach a greater number of online users. Bankrate.com had approximately 53 million unique visitors for the year ended December 31, 2006, and had approximately 53 million unique visitors for the nine months ended September 30, 2007, according to Omniture, a web analytics tool.

 

We believe our potential market is enormous and is still in the early growth stages of consumer awareness of the Internet as a personal finance tool. Financial institutions are still in the early stages of adopting the Internet for advertising products and customer acquisition. Their online advertising spending is still a very small percentage of their overall advertising budgets.

We market to advertisers targeting a specific audience in a city or state and also to national advertisers targeting the entire country. The key drivers to our business are advertiser demand and consumer traffic to our Online Network of personal finance web sites. Our consumer traffic has continued to grow with 487.4 million page views in 2006 compared to 430.2 million in 2005, and 423.5 million in the nine months of 2007, compared to 366.8 million in the first nine months of 2006. In addition, our advertiser demand increased in 2006 and continued to increase during the nine months ended September 30, 2007 both from increases in the demand from existing advertisers as well as new advertisers launching advertising campaigns on our Online Network.

Our gross margin averaged 75% from 2002 to 2005. Our gross margin decreased for the year ended December 31, 2006 to 69%, due to the inclusion of the results of FastFind, MMIS and Interest.com, which we acquired in the fourth quarter of 2005. The newspaper rate table business has typically generated margins in the 11% to 16% range and we expect margins for this business to remain near the lower end of that range for fiscal 2007.  As online publishing revenue grows as a percentage of total revenue, we expect our overall gross margin to expand. This expectation was realized through the third quarter of 2007 as online revenue represented 87% of total revenue and 98% of gross margin dollars, compared to 80% of total revenue and 97% of gross margin dollars for the year ended December 31, 2006. As a result our gross margin increased to 76% for the three months ended September 30, 2007.

We have steadily reduced operating expenses as a percentage of total revenue from 58% in 2002 to 47% in the quarter ended September 30, 2007. Operating expenses in 2006 include a legal settlement charge and related fees of $3,675,000.   Operating expenses as a percentage of total revenue have trended upward since the second quarter of 2007 due to higher share-based compensation expense. Our cash and cash equivalents have increased approximately $137.1 million since December 31, 2005 after closing a public offering of our common stock with net proceeds of approximately $92.4 million in May 2006.

($ in 000's)		Operating Expenses as a Percentage of Total Revenue
GAAP		Q3 07			Q2 07			Q1 07			2006			2005			2004			2003			2002
Total revenue		$	24,853		$	23,279		$	22,228		$	79,650		$	49,049		$	39,204		$	36,621		$	26,571
Operating expenses			11,578			10,446			8,567			40,749			21,993			21,130			19,301			15,334
Operating expenses as a percentage
of total revenue			47	%		45	%		39	%		51	%		45	%		54	%		53	%		58	%
Non-GAAP
Total revenue		$	24,853		$	23,279		$	22,228		$	79,650		$	49,049		$	39,204		$	36,621		$	26,571
Operating expenses			11,578			10,446			8,567			40,749			21,993			21,130			19,301			15,334
Share-based compensation expense			(3,002	)		(2,012	)		(1,270	)		(7,499	)		-			-			-			-
Operating expenses excluding share-based compensation expense			8,576			8,434			7,297			33,250			21,993			21,130			19,301			15,334
Operating expenses excluding share-based compensation expense as a percentage of total revenue			35	%		36	%		33	%		42	%		45	%		54	%		53	%		58	%

 

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Critical Accounting Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenue and expenses during the period. We base our judgments, estimates and assumptions on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We evaluate our judgments, estimates and assumptions on a regular basis and make changes accordingly. We believe that the judgments, estimates and assumptions involved in the accounting for income taxes, the allowance for doubtful accounts receivable, share-based compensation and legal contingencies have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Below we discuss the critical accounting estimates associated with these policies. For further information on our critical accounting policies, see the discussion in the section titled “Results of Operations and Critical Accounting Policies” below, and Note 2 in Notes to Consolidated Financial Statements in our 2006 Form 10-K.

Income Taxes

 

As required by SFAS No. 109, Accounting for Income Taxes, we use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. Tax laws are complex and subject to different interpretations by the taxpayer and the respective governmental taxing authorities. Significant judgment is required in determining our tax expense. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and the tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and our deferred tax assets and liabilities, and any valuation allowance to be recorded against a deferred tax asset. Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws and our interpretation of current tax laws. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws could significantly impact the amounts provided for income taxes in our consolidated financial statements. Our assumptions, judgments and estimates relative to the value of deferred tax assets take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates relative to the value of recoverable deferred tax assets inaccurate. Any of the assumptions, judgments and estimates could cause our actual income tax obligations to differ from our estimates and could materially impact our financial position and results of operations.

 

Effective January 1, 2007, we adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109. FIN No. 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

 

Allowance for Doubtful Accounts Receivable

 

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of our customers to make required payments. We look at historical write-offs and sales growth when determining the adequacy of the allowance. This estimate is inherently subjective because our estimates may be revised as more information becomes available. Should the financial condition of our customers deteriorate, resulting in an impairment of their ability to make payments, or if the level of accounts receivable increases, the need for possible additional allowances may be necessary. Any additions to the allowance for doubtful accounts are recorded as bad debt expense and included in general and administrative expenses. During the three months ended September 30, 2007 and 2006, we charged approximately $150,000 and $492,000, respectively, to bad debt expense, wrote off (net of recoveries) approximately $740,000 and $485,000, respectively, of accounts deemed uncollectible.

 

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During the nine months ended September 30, 2007 and 2006, we charged approximately $649,000 and $1,158,000, respectively, to bad debt expense, and wrote off (net of recoveries) approximately $807,000 and $658,000, respectively, of accounts deemed uncollectible.

 

Share-Based Compensation

 

We adopted the provisions of, and account for share-based compensation in accordance with, SFAS 123R effective January 1, 2006. We elected the modified-prospective method, pursuant to which prior periods are not revised for comparative purposes. Under the fair value recognition provisions of this statement, share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

 

We currently use the Black-Scholes option pricing model to determine the fair value of our stock options. As discussed in the notes to our consolidated financial statements, the determination of the fair value of the awards on the date of grant using an option-pricing model is affected by the price of our common stock as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.

 

If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

 

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable; characteristics not present in our option grants. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our share-based compensation. Consequently, there is a risk that our estimates of the fair values of our share-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments in the future. Certain share-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements. There currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values.

 

In April 2007, we awarded 200,000 shares of restricted common stock to certain executive officers. The awards have an eight-year term and only vest if, at any point during the term of the award, the closing price of the Company’s stock is at or above the following specific thresholds for ninety consecutive days; $44.00 - 25% of award shares vest; $50.00 - 33% of award shares vest; $56.00 - remaining 42% of award shares vest. Once the specific threshold has been satisfied, the applicable percentage of award shares vest as follows; one-third upon satisfying the incremental threshold; one-third on the first anniversary of satisfying the incremental threshold; and the remaining one-third on the second anniversary of satisfying the incremental threshold. The awards also vest on a change in control provided certain conditions are met. We valued the awards using a Monte Carlo simulation model that uses the following assumptions: volatility factor - 61.8% based on a weighted average of historical stock price volatility and implied volatility in market traded options; risk-free interest rate - 4.73% on U.S. Treasury constant maturity issues having remaining terms similar to the expected term of the awards; and the dividend yield is 0%.   The weighted average grant date fair value was $35.59 and  the weighted average expected time to vest as of September 30, 2007 was 1.89 years. Share-based compensation expense for the three and nine months ended September 30, 2007 included approximately $890,000 and $1,506,000, respectively, related to the awards. No award shares were vested as of September 30, 2007.

 

Share-based compensation expense recognized in our condensed consolidated statements of income for the three and nine months ended September 30, 2007 and 2006 is as follows:

			Three Months Ended September 30,						Nine Months Ended September 30,
Income Statement Classifications			2007			2006			2007			2006
Cost of revenue:
Online publishing			$	570,772		$	289,546		$	1,420,922		$	786,542
Print publishing and licensing				39,526			39,984			120,141			107,806
Other expenses:
Sales				487,420			215,980			861,430			543,017
Marketing				198,189			-			439,569			-
Product development				243,576			111,644			563,674			358,276
General and administrative				2,072,845			1,085,803			4,419,838			4,909,811
Total			$	3,612,328		$	1,742,957		$	7,825,574		$	6,705,452

 

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Goodwill Impairment

 

We perform goodwill impairment tests on an annual basis during the fourth quarter of our fiscal year, or more frequently, if facts and circumstances warrant a review. We make judgments about goodwill whenever events or changes in circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist. The timing of an impairment test may result in charges to our statement of income in our current reporting period that could not have reasonably been foreseen in prior periods. In order to estimate the fair value of goodwill, we typically make various assumptions about the future prospects the asset relates to, consider market factors and estimate our future cash flows. Based on these assumptions and estimates, we determine whether we need to record an impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value. Assumptions and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, different assumptions and estimates could materially affect our reported financial results. More conservative assumptions of the anticipated future benefits could result in impairment charges, which would decrease net income and result in lower asset values on our balance sheet. Conversely, less conservative assumptions could result in smaller or no impairment charges, higher net income and higher asset values.

Results of Operations and Critical Accounting Policies

 

The following is our analysis of the results of operations for the periods covered by our financial statements that we believe are critical to an understanding of our business performance and to making the estimates and judgments underlying our financial statements, including a discussion of the accounting policies and practices (revenue recognition, allowance for doubtful accounts, share-based compensation, and income taxes) that we believe are critical to an understanding of our results of operations and to making estimates and judgments underlying our financial statements.   This analysis should be read in conjunction with our interim condensed consolidated financial statements, including the related notes. See “Results of Operations and Critical Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2006 Form 10-K for additional information concerning the revenue and expense components of our online and print publishing operations.

Results of Operations

 

Three and Nine Months Ended September 30, 2007 Compared to the Three and Nine Months Ended September 30, 2006

 

		Total Revenue
($ in 000's)
		Q3 07			Q2 07			Q1 07			Q4 06			Q3 06			Q2 06			Q1 06
Online publishing		$	21,624		$	20,240		$	19,052		$	17,113		$	15,777		$	15,465		$	15,616
Print publishing and licensing			3,229			3,039			3,176			3,596			3,709			4,201			4,172
		$	24,853		$	23,279		$	22,228		$	20,709		$	19,486		$	19,666		$	19,788

 

Revenue

 

Online Publishing Revenue

 

We sell graphic advertisements on our Online Network consisting primarily of banner, badge, billboard, poster and skyscraper advertisements. These advertisements are sold to advertisers according to the cost-per-thousand impressions (“CPM”) the advertiser receives, and in fixed-billed campaigns. The amount of advertising we sell is a function of (1) the number of visitors to our Online Network, (2) the number of ad pages we serve to those visitors, (3) the number of advertisements per page, and (4) advertiser demand. Advertising sales are invoiced monthly at amounts based on specific contract terms. When the number of impressions over the contract term is guaranteed, the monthly invoiced amount is based on the monthly contractual number of impressions delivered at the contractual price or CPM. Revenue is recognized monthly based on the actual number of impressions delivered, and the revenue corresponding to any under-delivery is deferred as unearned income on the balance sheet and is recognized later when the under-delivery is served. When the number of impressions over the contract term is not guaranteed, the monthly invoiced amount is determined and revenue is recognized based on the actual number of impressions delivered at the contractual price or CPM. Additionally, we generate revenue on a “per action” basis (i.e., a purchase or completion of an application) when a visitor to our Online Network transacts with one of our advertisers after viewing an advertisement. Revenue is recognized monthly based on the number of actions reported by the advertiser, subject to our verification. We are also involved in revenue sharing arrangements with our online partners where the consumer uses co-branded sites hosted by us. Revenue is effectively allocated to each partner based on the percentage of advertisement views at each site. The allocated revenue is shared according to distribution agreements. Revenue is recorded at gross amounts and partnership payments are recorded in cost of revenue, pursuant to the provisions of Emerging Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. We also sell hyperlinks (interest rate table listings) on various third-party Internet sites on a cost-per-click (“CPC”) basis. Advertisers pay us each time a visitor to our Online Network clicks on a rate table listing, net of invalid clicks. We also sell text links on our rate pages to advertisers on a CPC basis. Advertisers enter an auction bidding process on a third-party web site for placement of their text link based on the amount they are willing to pay for each click though to their web site. We recognize revenue monthly for each text link based on the number of clicks at the CPC contracted for during the auction bidding process.

 

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		Quarterly Online Publishing Revenue
($ in 000's)
		Q3 07			Q2 07			Q1 07			Q4 06			Q3 06			Q2 06			Q1 06
Graphic ads		$	11,747		$	12,040		$	10,472		$	9,696		$	9,184		$	9,217		$	9,159
Hyperlinks			9,877			8,200			8,580			7,417			6,593			6,248			6,457
		$	21,624		$	20,240		$	19,052		$	17,113		$	15,777		$	15,465		$	15,616

 

Online publishing revenue of $21,624,000 for the three months ended September 30, 2007 was approximately $5,847,000, or 37%, higher than the $15,777,000 reported for the same period in 2006. This increase was due to a $2,563,000, or 28%, increase in graphic ad revenue, and a $3,284,000, or 50%, increase in hyperlink revenue.

 

Page views for the quarter ended September 30, 2007 were 144.2 million and were 17.6 million, or 14%, higher than the 126.6 million reported in the same period in 2006.

 

The 28% increase in graphic ad revenue during the quarter ended September 30, 2007 was driven by an increase in advertiser demand partially offset by a decrease in revenue generated by our FastFind/Bankrate Select lead generation business.

 

The increase in hyperlink revenue of 50% for the quarter ended September 30, 2007 compared to the same period in 2006 was driven by an increase in revenue per click as well as an increase in the total amount of clicks processed.

 

For the nine months ended September 30, 2007, online publishing revenue of $60,916,000 was $14,058,000, or 30%, higher than the $46,858,000 reported in the same period in 2006. This increase was due to a $6,699,000, or 24%, increase in graphic ad revenue, and a $7,359,000, or 38%, increase in hyperlink revenue.

 

Page views for the nine months ended September 30, 2007 were 423.5 million and were 56.7 million, or 15%, higher than the 366.8 million reported in the same period in 2006.

 

The 24% increase in graphic ad revenue during the nine months ended September 30, 2007 was driven by an increase in advertiser demand partially offset by a decrease in revenue generated by our FastFind/Bankrate Select lead generation business.

 

The increase in hyperlink revenue of 38% for the nine months ended September 30, 2007 compared to the same period in 2006 was driven by an increase in revenue per click as well as an increase in the total amount of clicks processed.

 

A majority of our advertising customers purchase advertising under short-term contracts. Online publishing revenue would be adversely impacted if we experienced contract terminations, or if we were not able to renew contracts with existing customers or obtain new customers. The market for Internet advertising is intensely competitive and has, in the past, experienced downturns in demand that could adversely impact advertising rates. Future revenue could be adversely affected if advertising demand declined and we were forced to reduce our advertising rates or if we were to experience lower CPM’s. To date, however, the demand our products and services has steadily increased as have our advertising rates and CPM’s.

 

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In terms of page views, we believe our online publishing segment’s quarterly page view volumes are fairly consistent with the exception of the fourth quarter, which typically declines due to the holiday season.

 

		Page Views
(Millions)
		2007			2006			2005			2004			2003			2002
Q1			143.2			124.2			111.0			117.2			106.7			58.4
Q2			136.1			116.0			113.8			92.6			121.8			48.0
Q3			144.2			126.6			107.8			92.0			100.3			82.1
Q4			-			120.6			97.6			91.3			75.8			79.3
Year			-			487.4			430.2			393.1			404.6			267.8

Print Publishing and Licensing Revenue

 

Print publishing and licensing revenue represents advertising revenue from the sale of advertising in the Mortgage and Deposit Guide (formerly called Consumer Mortgage Guide) rate tables, newsletter subscriptions, and licensing of research information. We charge a commission for placement of the Mortgage and Deposit Guide in a print publication. Advertising revenue and commission income is recognized when the Mortgage and Deposit Guide runs in the publication. Revenue from our newsletters is recognized ratably over the period of the subscription, which is generally up to one year. Revenue from the sale of research information is recognized ratably over the contract period.