Stamps.com 2007 Annual Report Download - page 28

Revenue. Revenue increased 37% from $61.9 million in 2005 to $84.5 million in 2006.
Service fee revenue increased 27% from $42.4 million in 2005 to $53.8 million in 2006. The increase in service fee revenue
is primarily due to the increase in our successfully billed customers as a result of the growth in our customer base, plus the
migration of existing customers from our Simple Plan price point of $4.49 per month to the Power/Pro Plan at $15.99 per month
and the Premier Plan at higher price points, resulting in higher service fee revenue per customer. Average monthly service fee
revenue per paid customer increased approximately 17% from $11.9 during the 2005 to $14.0 during 2006. As a percentage of
total revenue, service fee revenue decreased five percentage points to 64% in 2006 from 69% in 2005. The decrease in service
fee revenue as a percentage of total revenue is attributable to the increase in revenue from our PhotoStamps product during 2006.
PhotoStamps revenue increased 111% from $8.9 million in 2005 to $18.8 million in 2006. As a percentage of total revenue,
PhotoStamps revenue increased eight percentage points to 22% in 2006 as compared to 14% in 2005. The increase, both on an
absolute basis and as a percentage of total revenue, is primarily due to the increase in PhotoStamps sheet shipped as a result of
our marketing efforts. Total PhotoStamps sheets shipped during 2006 was approximately 1.0 million as compared to 0.5 million
in 2005. The increase is also partially attributable to the fact that we did not have PhotoStamps revenue in the first quarter of
2005 as our second market test had not yet been launched.
Product revenue increased 18% from $7.4 million in 2005 to $8.7 million in 2006. The increase is primarily due to the
expansion of our consumable and supplies sales through our Supplies Store as a result of the growth in the size of our customer
base and our continued effort to market these offerings to our existing and new customers. Additionally, in September 2006 we
launched a new Mailing & Shipping Supplies Store within version 6.0 of the PC Postage client software. As a percentage of total
revenue, product revenue decreased two percentage points to 10% in 2006 from 12% in 2005. This decrease is primarily due to
the increase in PhotoStamps revenue. Other revenue was approximately $3.3 million in 2005 and 2006, respectively. As a
percentage of total revenue, other revenue decreased one percentage point to 4% in 2006 from 5% in 2005. Our branded
insurance program, which we include in other revenue, was approximately $1.4 million in both 2005 and 2006, or approximately
2.3% and 1.7% of total revenue, respectively.
Cost of Revenue. Cost of revenue increased 42% from $17 million in 2005 to $25 million in 2006. As a percentage of total
revenue, cost of revenue increased one percentage point to 29% in 2006 as compared to 28% in 2005.
Cost of service revenue increased 8% from $9.2 million in 2005 to $9.9 million in 2006. The increase is mainly attributable
to the increase in the cost of customer service. Additionally, cost of service revenue for 2006 included approximately $273,000
of stock-based employee compensation expense related to our adoption of FASB 123(R) in 2006. We did not incur a similar
charge in 2005. As a percentage of total revenue, cost of service revenue decreased three percentage points to 12% in 2006 from
15% in 2005. The decrease in cost of service revenue as a percentage of total revenue is primarily due to the increase in
PhotoStamps revenue which has a lower gross margin than service revenue.
Promotional expenses were approximately $2.2 million in each of 2006 and 2005.
Cost of PhotoStamps revenue increased 112% from $5.5 million in 2005 to $11.6 million in 2006. As a percentage of total
revenue, cost of PhotoStamps increased five percentage points to 14% in 2006 from 9% in 2005. The increase, both on an
absolute basis and as a percentage of total revenue, is primarily due to the increase in the number of PhotoStamps sheets shipped.
Cost of product revenue increased 21% from $2.2 million in 2005 to $2.7 million in 2006. The increase is primarily due to
the expansion of our consumable and supplies sales through our Supplies Store as a result of our continued effort to market these
offerings to our existing and new customers. As a percentage of total revenue, cost of product revenue decreased one percentage
point to 2% in 2006 from 3% in 2005. The decrease in cost of product revenue as a percentage of total revenue is primarily due
to the increase in PhotoStamps revenue.
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Cost of other revenue increased 13% from $535,000 in 2005 to $607,000 in 2006. The increase is primarily due to the
increase in insurance premium cost of sale. As a percentage of total revenue, cost of other revenue was one percent during each
of 2006 and 2005.
Sales and Marketing. Sales and marketing expense increased 40% from $19.8 million in 2005 to $27.8 million in 2006,
primarily due to the increase in various marketing program expenditures relating to the acquisition of customers for our core
business and for PhotoStamps. Our sales and marketing expense for 2006 included approximately $336,000 of stock-based
employee compensation expense related to our adoption of FASB 123(R) in 2006. We did not incur a similar charge in 2005. As