providers and payment service providers, increased customer acquisition costs to drive user growth, and higher staff costs from increased headcounts and salaries. The sequential increase was primarily due to increased hardware procurement cost for NationSky’s Enterprise Mobility business, increased customer acquisition costs, increased revenue sharing with content providers and payment service providers and higher staff cost.
Gross Profit and Gross Margin
Gross profit in the fourth quarter of 2013 was $33.1 million, up 62.7% year-over-year and 2.7% sequentially. Gross margin, or gross profit as a percentage of net revenues, was 48.8% in the fourth quarter of 2013, compared with 67.8% in the same quarter a year ago and 59.5% in the previous quarter. Excluding the impact from NationSky, gross margin was 63.6% in the fourth quarter of 2013, compared with 73.3% in the previous quarter. The decline of the gross margin was mainly due to increased revenue contribution of mobile games and advertising which have lower gross margins than the mobile security subscription business. NationSky’s gross margin in the fourth quarter of 2013 was approximately 20.6%, compared with 24.8% in the previous quarter, and the cost of revenues for NationSky primarily consists of the hardware device procurement cost. The decline of NationSky’s gross margin in this quarter was mainly due to the higher percentage of hardware sale revenues which has lower gross margin.
Operating Expenses
Total operating expenses in the fourth quarter of 2013 were $37.8 million, up 89.4% year-over-year and 8.1% sequentially. Non-GAAP operating expenses were $20.5 million in the fourth quarter of 2013, up 63.6% year-over-year and 34.1% sequentially. In this quarter, expenses related to handling short seller allegations were $2.4 million.
Selling and marketing expenses were $7.8 million in the fourth quarter of 2013, up 62.5% year-over-year and 18.1% sequentially. Non-GAAP selling and marketing expenses[9] were $7.5 million, up 79.2% year-over-year and 23.0% sequentially. The GAAP expenses year-over-year increases were primarily due to higher marketing and advertising spending and higher staff costs from headcount and salary increase, partially offset by lower share-based compensation costs. The sequential increase was primarily due to higher marketing and advertising spending and higher staff costs, partially offset by lower share-based compensation costs.
General and administrative expenses were $24.0 million in the fourth quarter of 2013, up 103.6% year-over-year and down 1.3% sequentially. Non-GAAP general and administrative expenses[10] were $7.3 million, up 31.9% year-over-year and 29.9% sequentially. The GAAP expenses year-over-year increase was mainly due to higher share-based compensation expenses, higher staff costs, higher office related expenses, higher bad debt expenses and higher legal fees. The sequential increase was primarily due to higher legal and professional fees, higher staff costs and higher bad debt expenses, partially offset by lower share-based compensation expenses.
Research and development expenses were $6.0 million in the fourth quarter of 2013, up 78.1% year-over-year and 48.1% sequentially. Non-GAAP research and development expenses[11] were $5.7 million, up 102.8% year-over-year and 59.4% sequentially. The GAAP expenses year-over-year increase was primarily due to higher staff cost from salary and headcount increases, higher rental costs, and higher depreciation. The sequential increase was primarily due to higher staff cost from salary increase.
(Loss)/Income from Operations and Operating Margin
Loss from operations in the fourth quarter of 2013 was $4.7 million, compared with the income from operations of $0.4 million in the same quarter a year ago and a loss from operations of $2.7 million in the previous quarter.
Non-GAAP income from operations was $12.6 million in the fourth quarter of 2013, up 60.9% year-over-year and down 25.9% sequentially. Non-GAAP operating margin was 18.6% in the fourth quarter of 2013, compared with 26.2% in the same quarter a year ago and 31.5% in the previous quarter. Excluding the impact from NationSky, non-GAAP operating margin was 22.0% in the fourth quarter of 2013, compared with 39.0% in the previous quarter.
NationSky’s GAAP operating margin in the fourth quarter of 2013 was 12.1%, compared with 12.3% in the previous quarter.
Foreign Exchange Gain / (Loss), Interest Income /(Loss) and Other Income
Foreign exchange gain was $0.6 million in the fourth quarter of 2013, compared with a gain of $0.7 million in the same quarter a year ago and $0.2 million in the previous quarter. Foreign exchange gain was primarily attributable to the appreciation of RMB against US$. Interest expenses were $2.0 million in the fourth quarter of 2013, compared with interest income of $0.9 million in the same quarter a year ago and $0.9 million in the previous quarter. The
