Stamps.com 2003 Annual Report Download - page 26

Table of Contents
approximately 294,000 registered customers. This is up from approximately 286,000 registered customers at the end of 2002. Each of our
registered customers has a Stamps.com postal meter license which is issued by the US Postal Service. The increase in customers was primarily
related to a continued increase in customer acquisition through our marketing channels.
We continue to make technology improvements to our billing system, and we continue to refine our understanding of the credit card
collection process in a recurring revenue model. We switched to a new payment processor during the third quarter of 2003 and we spent much
of the fourth quarter sifting through the error codes and data on our uncollectible customers. Following this exercise, we identified
approximately 38,000 customers who we deemed as hopelessly uncollectible based on the most recent credit card decline codes we were
receiving from our new payment processor. At the end of the fourth quarter, we purged these customers from our system which required us to
revoke their USPS meter licenses. Excluding the impact of the approximately 38,000 customer purge, registered customers would have
increased from approximately 286,000 at the end of 2002 to approximately 332,000 at the end of 2003. During the fourth quarter of 2003, we
successfully billed approximately 235,000 unique registered customers for our service fee, up from approximately 216,000 for the third quarter
of 2003 and up from approximately 204,000 and for the fourth quarter of 2002.
Results of Operations
Years Ended December 31, 2002 and 2003
Revenue. 2002 and 2003 revenue was derived primarily from two sources: (1) service fees charged to customers for the ability to buy and
print postage and (2) product sales and other revenue, consisting of online store revenue from the direct sale of consumables and products,
advertising revenue from controlled access advertising to our existing customer base and insurance revenue from our parcel insurance offering.
Revenue increased from $16.4 million to $21.2 million, or 29.8%, for the years ended December 31, 2002 and 2003, respectively.
Service fee revenue increased from $14.9 million to $17.6 million, or 18.1%, for the years ended December 31, 2002 and 2003,
respectively. The increase in service fee revenue is primarily due to the increase in customer acquisition, which resulted largely due to an
increase in our marketing spending. Furthermore, in 2003 we acquired a higher percentage of power plan customers which resulted in higher
service fee revenues per customer.
Product sales and other revenue increased from $1.5 million to $3.6 million, or 148.6%, for the years ended December 31, 2002 and 2003,
respectively. The increase is primarily due to the increase in our consumable and product offering available to our customers. In 2003, we
introduced our parcel insurance offering, specialty NetStamps labels, shipping labels, Internet Postage labels, dedicated postage printers, and
scales, among other items available to our customers.
Cost of Revenue. Cost of revenue principally consists of the cost of customer service, promotional expenses, system operating costs, credit
card processing fees and the cost of consumables and products sold through our online store.
Cost of service revenue increased from $5.0 million for the year ended December 31, 2002, to $7.2 million for the year ended December 31,
2003, an increase of 42.2%. The increase is primarily due to increased promotional expense as a result of increased customer acquisition.
Typical promotional expense includes, among other items, free postage and a free scale for new customers. Such promotional expense was
approximately $1.5 million and $3.0 million for the year ended December 31, 2002 and 2003, respectively.
Cost of product sales and other revenue increased from $299,000 for the year ended December 31, 2002, to $1.1 million for the year ended
December 31, 2003, an increase of 272.2%. The increase is primarily due to the cost of our expansion of the number of available products
offered to our customers.
Research and Development. Research and development expense principally consists of compensation for personnel involved in the
development of our service and expenditures for consulting services and third-party software. Research and development expense was
approximately $4.8 million for the years ended December 31, 2002 and 2003, respectively.
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