Classmates.com 2006 Annual Report Download - page 16

not successful in growing our revenues within this segment, it is likely to adversely affect our diversification strategy and our future prospects.
Failure to increase revenues in this segment could also adversely impact the profitability of this segment and the Company as a whole.
We may be unable to maintain or grow our advertising revenues. Reduced advertising revenues may reduce our profits.
Advertising revenues are an increasingly important component of our revenues and profitability. Our revenues from advertising have in the
past fluctuated, and may in the future fluctuate, due to a variety of factors including, without limitation, the effect of key advertising
relationships, changes in our business models, changes in the online advertising market, changes in our advertising inventory, and changes in
usage. In particular, we derive significant revenues from search and certain other advertising initiatives or partners, and any termination, change
or decrease in revenues from these sources could have a material impact on our advertising revenues. In response to competition, we could be
required to expend significant resources to develop or enhance our advertising services, although there can be no assurance that our efforts will
be successful. From time to time, we have undertaken initiatives that we believed would increase our advertising revenues but have resulted in
decreased advertising revenues. There can be no assurance our advertising initiatives will be effective, and our advertising revenues may decline
in future periods.
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 Annual Report on 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 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 account 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.
Our marketing activities may not be successful.
We spend significant funds to market our services. From time to time, we may allocate our advertising expenditures to different services for
various reasons, and these allocations may adversely impact some of our other services. Even if we choose to allocate significant marketing
resources to a particular service, there is no assurance that our marketing activities will be successful. At times we have increased our
profitability, in part, by decreasing our marketing expenditures. Future decreases in our marketing expenditures could adversely impact our
business. Future increases in our marketing expenditures could adversely impact our profitability and there can be no assurance that our
marketing activities will be successful in growing our businesses. We rely on a variety of distribution channels to obtain new accounts. If these
channels prove to be ineffective, or if the cost to acquire new accounts increases, our financial results could be materially and adversely
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, with churn in
recent periods approximating or exceeding five percent. Our churn
15