Stamps.com 2011 Annual Report Download - page 32

Product revenue increased 15% to $13.5 million in 2011 from $11.7 million in 2010. The increase in product revenue was primarily attributable
to the following: (1) growth in our paid customer base; (2) marketing our Supplies Store to our existing customer base; (3) additional SKUs we
added to our Supplies Store; and (4) growth in postage printed, which helps drive sales of consumable supplies such as labels. Total postage
printed by customers using our service during 2011 was $672 million, a 50% increase from $447 million in 2010. Store orders increased by 14%
in 2011 compared to 2010, while the average revenue per store order increased by 1% in 2011 compared to 2010. As a percentage of total
revenue, product revenue decreased slightly to 13% in 2011 from 14% in 2010, primarily as a result of the increase in revenue from our
insurance offering.
Insurance revenue increased 114% to $4.3 million in 2011 from $2.0 million in 2010. This increase was primarily attributable to (1) the
expansion of our existing package insurance offering to cover packages being shipped to international destinations, (2) insurance purchases
resulting from our new partnership with Amazon.com and (3) increased insurance purchases by high volume shippers. Total postage printed by
our high volume shipping customers in 2011 increased by 96% compared to 2010. As a percentage of total revenue, insurance revenue increased
to 4% in 2011 from 2% in 2010.
PhotoStamps revenue increased 15% to $8.3 million in 2011 from $7.2 million in 2010. The increase in PhotoStamps revenue was due to the
recognition of PhotoStamps retail box breakage revenue. Beginning in the second quarter of 2011, we began recognizing breakage revenue
related to our PhotoStamps retail boxes. During the second quarter of 2011, we recognized $2.2 million of retail box breakage revenue of which
$2.1 million related to a cumulative catch-
up for previously sold and unredeemed PhotoStamps retail boxes originally recorded as deferred
revenue. PhotoStamps retail breakage was not material for the third and fourth quarters of 2011. Please see Note 2 “
Summary of Significant
Accounting Policies
—PhotoStamps Retail Boxes” in our Notes to Consolidated Financial Statements for further discussion
. The increase in
PhotoStamps revenue from PhotoStamps retail box breakage was partially offset by lower sales of PhotoStamps through our website and other
channels. Excluding the PhotoStamps retail box breakage revenue we recognized in the second quarter of 2011, total PhotoStamps revenue
decreased 15% to $6.1 million in 2011 from $7.2 million in 2010. We continued to reduce our PhotoStamps sales and marketing spending in
2011 compared with 2010 and as a result, total PhotoStamps sheets shipped during 2011 was approximately 335,000, an 18% decrease compared
to 410,000 in 2010. Average revenue per sheet in 2011 excluding the PhotoStamps retail box breakage revenue was $18.1, a 4% increase
compared to $17.5 in 2010. As a percentage of total revenue, PhotoStamps revenue was unchanged at 8% in each of 2011 and 2010.
Other revenue consisting of commissions from the advertising or sale of products by third party vendors to our customer base was approximately
$6,000 in 2011 compared to $27,000 in 2010. Commission revenue is currently not material to our consolidated financial statements.
Cost of Revenue
Cost of service revenue principally consists of the cost of customer service, certain promotional expenses, system operating costs, credit card
processing fees and customer misprints that do not qualify for reimbursement from the USPS. Cost of product revenue principally consists of
the cost of products sold through our Mailing & Shipping Supplies Store and the related costs of shipping and handling. The cost of insurance
revenue principally consists of parcel insurance offering costs. Cost of PhotoStamps revenue principally consists of the face value of postage,
image review costs and printing and fulfillment costs. Total cost of revenue increased 11% to $26.2 million in 2011 from $23.7 million in
2010. As a percentage of total revenue, cost of revenue decreased to 26% in 2011 from 28% in 2010.
Cost of service revenue increased 11% to $14.7 million in 2011 from $13.3 million in 2010. The increase is primarily attributable to higher
promotional expense as a result of the increase in customer acquisition and higher redemption rates of our free scale and free postage offers.
Promotional expense, which represents a material portion of total cost of service revenue, is expensed in the period in which a customer qualifies
for the promotion, while the revenue associated with the acquired customer is earned over the customer's lifetime. As a result, promotional
expense for newly acquired customers may exceed the revenue earned from those customers in that period. Promotional expenses were $3.6
million and $2.7 million during 2011 and 2010, respectively. As a percentage of total revenue, cost of service revenue decreased to 15% in 2011
as compared to 16% in 2010.
Cost of product revenue increased 13% to $4.9 million in 2011 from $4.3 million in 2010. The increase in these costs was consistent with the
15% increase in product revenue during the same period. As a percentage of total revenue, cost of product revenue was 5% in both 2011 and
2010.
Cost of insurance increased 135% to $1.5 million in 2011 from $641,000 in 2010, an increase which was higher than the 114% growth in
insurance revenue during the same period. The faster growth in cost of insurance as compared to insurance revenue is primarily attributable to
discounted pricing offered to customers on certain higher volume shipping plans. As a percentage of total revenue, cost of insurance revenue
increased to 2% in 2011 as compared to 1% in 2010.
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