Stamps.com 2005 Annual Report Download - page 26

PhotoStamps revenue includes the price of postage and is made pursuant to a sales contract that provides for transfer of both title and risk
of loss upon our delivery to the carrier.
On a limited basis, we allow third parties to offer products and promotions to the Stamps.com customer base. These arrangements
generally provide payment in the form of a flat fee or revenue sharing arrangements where we receive payment upon customers accessing third
party products and services. Total revenue from such advertising arrangements is currently immaterial.
We provide our customers the opportunity to purchase parcel insurance directly through the Stamps.com software. The insurance
information is communicated directly to Parcel Insurance Plan for processing. The insurance is underwritten by Fireman’s Fund. We recognize
revenue from our insurance offerings based on the shipment date of the item insured.
Licensing revenue for the use of our software and intellectual property is recognized when the following four revenue recognition criteria
are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or
determinable, and collectibility is reasonably assured.
Advertising Costs.
We expense the costs of producing advertisements as incurred, 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,
completes the first purchase 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.
Results of Operations
Years Ended December 31, 2005 and 2004
During fiscal year 2005, we continued strong revenue growth both in service fee subscription and Supplies Store revenue, with total
revenue reaching approximately $61.9 million. We continued to see positive trends on usage of our service during the year as a result of the
improvements we made to our core product software features. Total postage printed using our service during fiscal year 2005 was up 23%
compared to fiscal year 2004. 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 284,000 during fiscal year 2005, up from approximately 241,000
during fiscal year 2004. Furthermore, during the second quarter of fiscal 2005, under the authorization of the US Postal Service we launched
our second market test of PhotoStamps, which is currently expected to last through May 2006.
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