Classmates.com 2005 Annual Report Download - page 21

• difficulty assimilating the acquired customer bases, technologies and operations;
•
difficulty assimilating and retaining employees from the acquired business;
• risks of entering markets in which we have little or no direct prior experience;
•
lack of controls, policies and procedures appropriate for a public company, and the time and cost related to the remediation of such
controls, policies and procedures;
•
potential impairment of relationships with employees, users, or vendors as a result of changes in management; and
• potential dilutive issuances of equity, large write-offs either at the time of the acquisition or in the future, the incurrence of restructuring
charges, the incurrence of debt, the amortization of identifiable intangible assets, and the impairment of amounts capitalized as intangible
assets if we should fail to successfully further develop acquired technology.
Classmates has a subsidiary operating in Germany and we may seek to expand our international business through acquisitions. Acquisitions
of foreign businesses involve risks in addition to those mentioned above, including risks associated with potentially unfamiliar economic,
political and regulatory environments and integration difficulties due to language, cultural and geographic differences. We cannot assure you that
any further acquisitions we make will be successful.
Our marketing activities may not be successful.
Our marketing activities may not be effective in maintaining or increasing the size of our pay and active account bases. We will be required
to incur significant marketing expenses to maintain or develop our brands and we may not be successful in increasing active and pay accounts
and subscriptions. We have increased the number of brands under which our services are marketed and increased the number of services we
offer. We may not have adequate resources to maintain all of our brands or promote all of our services. Our VoIP services, in particular, may
require significant marketing resources and we do not currently intend to allocate significant resources to market these services. Even if we
choose to allocate significant marketing resources to these services, there is no assurance that our marketing activities will be successful. We
intend to decrease our marketing budget from 2005 levels, which may adversely impact our ability to maintain or grow our revenues. We cannot
assure you that our marketing activities will be successful.
We obtain a significant number of new pay access accounts through our offline distribution channels, primarily Best Buy. If the number of
new pay accounts acquired through Best Buy were to decrease, such decrease could negatively impact the number of pay access accounts and
our revenues and profitability could be negatively impacted.
If we are unable to retain users, our business and financial results will suffer.
Historically, we have lost an average of four to five percent of our pay accounts each month, which we refer to as churn. Our churn
percentage is calculated based on the average number of pay accounts for a period. The average number of pay accounts is a simple average
calculated based on the number of pay accounts at the beginning and end of a period. We make certain normalizing adjustments to the
calculation of our churn percentage for periods in which we add a significant number of pay accounts due to acquisitions. We do not include in
our churn calculation those accounts cancelled during the first thirty days of service unless the accounts have upgraded from free accounts,
although a number of such accounts will be included in our account totals at any given measurement date. Subscribers who cancel one pay
service but subscribe to another pay service are not considered to have cancelled a pay account and, as such, our overall churn rate is not
necessarily indicative of the percentage of subscribers canceling any
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