Classmates.com 2004 Annual Report Download - page 50

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services, our pay accounts base could decline. Even if we are successful in growing our pay subscriptions, our revenues may decrease if our
ARPU decreases.
Our ARPU has declined in recent periods primarily as a result of changes in the mix of pay accounts to a larger percentage of lower priced
services, particularly as a result the acquisition of Classmates and the introduction of premium email services, and increased use of promotional
pricing and discounted plans for our access services. Changes in ARPU in the future will be dependent on a variety of factors including changes
in the mix of pay subscriptions and their related pricing plans; the use of promotions, such as one or more free months of service, and discounted
pricing plans to obtain or retain subscribers; increases or decreases in the price of our services; the number of services subscribed to by each pay
account; pricing and success of new pay services and the penetration of these types of services as a percentage of total pay accounts; and the
timing of pay accounts being added or removed during a period. Our pay access accounts, particularly those purchasing our accelerator services,
generate higher ARPU than our other services, and our inability to grow these services, the use of promotions and discounted plans with respect
to these services, or decreases in the pricing for these services, will adversely impact our ARPU. We anticipate that our ARPU will continue to
decrease, at least in the near term. If we are not successful in growing our pay accounts and subscriptions or maintaining or growing our ARPU,
our revenues could decrease. A decrease in our revenues could adversely impact our profitability.
Our business is subject to fluctuations.
Our results of operations and changes in the number and mix of pay accounts from period to period have varied in the past and may
fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and difficult to predict. A number of
factors that may impact us are discussed in greater detail in this Form 10-
K, and these factors may affect us from period to period and may affect
our long-term performance. As a result, you should not rely on period-to-period comparisons as an indication of future or long-term
performance. In addition, these factors create difficulties with respect to our ability to forecast our financial performance and user metrics
accurately. We believe that these difficulties in forecasting present even greater challenges for financial analysts who publish their own estimates
of our future financial results and user metrics. We cannot assure you that we will achieve the expectations or financial projections made by our
management or by the financial analysts. In the event we do not achieve such expectations or projections, the price of our common stock could
be adversely affected.
If we cannot identify and complete acquisitions, we may not be able to grow and achieve our strategic objectives.
One of our strategic objectives is to acquire businesses, product lines or technologies which will provide us with an opportunity to leverage
our assets and core competencies, or which otherwise will be complementary to our existing businesses. We may not succeed in growing our
revenues unless we are able to successfully complete acquisitions. The merger and acquisition market for companies offering Internet
subscription services is extremely competitive, particularly for companies who have demonstrated a profitable business model with long-term
growth potential. Recently, the public equity markets have been very receptive to companies with these characteristics. As a result, companies
with these characteristics, in many cases, trade publicly or are privately valued at multiples of earnings, revenues, operating income and other
metrics significantly higher than the multiples at which we are currently valued. Acquisitions may require us to obtain additional debt or equity
financing, which may not be available to us on reasonable terms, or at all. In addition, our term loan imposes restrictions on our ability to make
acquisitions. These and other factors may make it difficult for us to acquire additional businesses, product lines or technologies at affordable
prices, or at all, and there is no assurance that we will be successful in completing additional acquisitions.
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