Classmates.com 2005 Annual Report Download - page 19

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ITEM 1A. RISK FACTORS
Before deciding to invest in our company or to maintain or increase your investment, you should carefully consider the risks described
below as well as the other information in this report and our other filings with the SEC. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect
us. If any of these risks actually materialize, our business, financial position, results of operations and cash flows could be adversely impacted.
In that event, the market price of our common stock could decline and you may lose all or part of your investment.
Our business will suffer if we are unable to compete effectively.
See the discussion of the competition we face in Item 1.
Our revenues may continue to decrease and our profitability may decrease.
Our revenues in the fourth quarter of 2005 decreased from our revenues in the third quarter of 2005, and we expect our revenues to continue
to decline, at least in the near term. Our ability to stabilize or minimize decreases in our revenues is primarily dependent upon our ability to
increase our number of pay subscriptions and accounts, our average monthly revenue per pay account (“ARPU”) and our advertising revenues.
We have been experiencing an increasing rate of decline in our pay access accounts and currently anticipate that our pay access accounts will
continue to decline in the future and that the rate of decline may accelerate. The ARPU for our access services, including our accelerated access
services, has also declined and we anticipate it will continue to decline. Even if we are successful in growing our number of pay accounts as a
result of increases in our non-access accounts, due to the lower ARPU for our non-access services we believe that our revenues will continue to
decline, at least in the near term. We are budgeting our expenditures for 2006 based upon assumptions with respect to growth in our non-access
pay accounts, growth in advertising revenues and decreases in pay access subscribers and ARPU. If we are unable to grow our non-access pay
accounts as anticipated, if our ARPU declines more than anticipated, if we do not generate anticipated advertising revenues or if our pay access
base declines faster than anticipated, our profitability could be materially and adversely impacted.
We anticipate a significant decrease in our marketing expenditures during 2006 from what we spent in 2005. At the same time, we currently
have more services to market than we did in throughout 2005 and we have increasing competition with respect to all of our service offerings.
The amount we have budgeted for marketing may be insufficient to effectively market all of our services, and subscriptions to our access
services may decline much faster than anticipated and subscriptions to our non-access services may not grow as anticipated, all of which would
negatively impact our revenues and profitability in the near term and our prospects in the long term. If we choose to increase our marketing
expenditures beyond what we currently anticipate, our profitability will likely be adversely affected, at least in the near term.
Our ability to grow or maintain our number of pay accounts and subscriptions may also be dependent on our success in commercializing
new services that we either acquire or develop. To the extent we are unable to successfully market our existing services to new users,
successfully cross-market additional subscriptions to existing users or successfully acquire or develop and commercialize new services, our pay
accounts and subscriptions could continue to decline.
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
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