Stamps.com 2004 Annual Report Download - page 23

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21
Advertising Costs. We expense the costs of producing advertisements when the advertising first runs, and
expense the costs of communicating and placing the advertising in the period in which the advertising space or
airtime is used.
Internet advertising. We recognized expense based on the specifics of the individual agreements. Under
partner and affiliate agreements, third parties refer prospects to our web site and we pay the third parties when the
customer completes the customer registration process, or in some cases, upon the first successful billing of a
customer. We record these expenses on a monthly basis as prospects are successfully converted to customers.
Intangibles. We make an assessment of the estimated useful lives of our patents and other amortizable
intangibles. These estimates are made using various assumptions that are subjective in nature and could change as
economic and competitive conditions change. If events were to occur that would cause our assumptions to change,
the amounts recorded as amortization would be adjusted.
Contingencies and Litigation. We are involved in various litigation matters as a claimant and as a
defendant. We record any amounts recovered in these matters when collection is certain. We record liabilities for
claims against us when the losses are probable and estimatable. Any amounts recorded would be based on reviews
by outside counsel, in-house counsel and management. Actual results may differ from estimates. Refer to “Part I -
Item 3 - Legal Proceedings” of this report for a discussion of legal proceedings.
Results of Operations
Years Ended December 31, 2004 and 2003
During the fiscal year 2004, we experienced strong revenue growth both in service fee subscription and
online store revenue, with revenue reaching an all-time high of approximately $38 million. Furthermore, during the
third quarter of fiscal 2004 we concluded a market test of our new form of postage called PhotoStamps. We
continued to see positive trends on usage of our service during the year. Total postage printed using our service
during the fiscal year 2004 was up 53% compared to fiscal year 2003. We continued to attract a significant number
of new customers from online advertising and direct mail, our primary marketing channels. Gross customers
acquired were approximately 241,000 during the fiscal year 2004, up from approximately 140,000 during the fiscal
year 2003.
The following table sets forth our results of operation as a percentage of total revenue for the periods
indicated:
Twelve months ended December 31,
2004 2003
Total Revenues
Service ................................................................................................ 73% 83%
Photostamps........................................................................................ 6%
—
Product and other................................................................................ 21% 17%
Total revenues................................................................................ 100% 100%
Cost of revenues
Service ................................................................................................ 25% 34%
Photostamps........................................................................................ 4%
—
Product and other................................................................................ 6% 5%
Total cost of revenues .................................................................... 35% 39%
Gross profit .................................................................................... 65% 61%
Operating expenses:
Sales and marketing............................................................................ 33% 30%
Research and development ................................................................. 16% 23%
General and administrative ................................................................. 34% 68%
Total operating expenses..................................................................... 83% 121%
Loss from operations ............................................................................... (18)% (60)%
Other income, net ............................................................................... 6% 16%
Net loss .................................................................................................... (12)% (44)%