Stamps.com 2006 Annual Report Download - page 26

In February 2007, Stamps.com announced that we plan to change our publicly available customer metrics starting with the fourth quarter
2006 earnings release and continuing forward into fiscal 2007. The new metrics will be based primarily on paid subscribers whereas the prior
Company customer metrics were based primarily on registered subscribers. We believe that the new metrics will provide a simpler and clearer
depiction of our Company’s business while also providing an improved means of comparing our Company’s metrics to those of other
subscription-based Internet companies. A complete set of the old and new quarterly customer metrics is available currently at
http://investor.stamps.com.
Critical Accounting Policies
General . The discussion and analysis of our financial condition and results of operations are based on our Company’
s financial statements
which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to patents, contingencies and
litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our
financial statements.
Revenue Recognition
. We recognize revenue from product sales or services rendered, as well as from licensing the use of our software and
intellectual property, 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.
Service revenue is based on monthly convenience fees and is recognized in the period that services are provided. Product sales, net of
return allowances, are recorded when the products are shipped and title passes to customers. Sales of items, including PhotoStamps, sold to
customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier. Return
allowances, which reduce product revenue by our best estimate of expected product returns, are estimated using historical experience.
Licensing revenue is recognized ratably over the contract period. Commissions from the advertising or sale of products by a third party vendor
to our customer base are recognized when the revenue is earned and collection is deemed probable.
Customers who purchase postage for use through our NetStamps, shipping label or mailing features, pay face value, and the funds are
transferred directly from the customers to the U.S. Postal Service. No revenue is recognized for this postage as it is purchased by our customers
directly from the U.S. Postal Service.
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 with the opportunity to purchase parcel insurance directly through the Stamps.com software. Insurance revenue
represents the gross amount charged to the customer for purchasing insurance and the related cost represents the amount paid to the insurance
broker, Parcel Insurance Plan. We recognize revenue on insurance purchases upon the ship date of the insured package.
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 recognize 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.
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