Stamps.com 2008 Annual Report Download - page 25

Revenue
Our revenue is derived primarily from five sources: (1) service fees charged to customers for use of our PC Postage service;
(2) product sales consisting of Supplies Store revenue from the direct sale of consumables and supplies (3) insurance revenue
from our branded insurance offering; (4) PhotoStamps revenue from our
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PhotoStamps business; and (5) other revenue, consisting of licensing revenue and advertising revenue derived from advertising
programs with our existing customer base. Total revenue decreased 1% to $84.9 million in 2008 from $85.8 million in 2007.
Service revenue increased 10% to $61.6 million in 2008 from $55.9 million in 2007. The increase in service revenue is
primarily due to the increase in our successfully billed customers as a result of the growth in our customer base. The 10%
increase in service revenue consisted of a 13% increase in service revenue from customers acquired through our non-enhanced
promotion channels and a 4% decrease in service revenue from customers acquired through our enhanced promotion channel.
The 13% increase in service revenue from customers through the non-enhanced promotion channels consisted of a 12% increase
in successfully billed customers and a 1% increase in average service revenue per customer. As a percentage of total revenue,
service revenue increased approximately eight percentage points to 73% in 2008 from 65% in 2007, primarily as a result of the
decrease in revenue from our PhotoStamps product.
Product revenue increased 3% to $9.9 million in 2008 from $9.6 million in 2007. The increase in product revenue was
attributable to growth in the number of orders, partially offset by a decline in the average revenue per order. The increase in
product revenue consisted of a 4% increase in store orders shipped and a 1% decrease in average revenue per order. The increase
in store orders shipped was primarily attributable to an increase in our paid customer base. As a percentage of total revenue,
product revenue increased approximately one percentage point to 12% in 2008 from 11% in 2007.
Insurance revenue increased 6.5% to $1.6 million in 2008 from $1.5 million in 2007. The increase in insurance revenue
consisted of a 2% increase in insurance transactions and a 4% increase in average revenue per insurance transaction. The
increase in insurance transactions was primarily attributable to an increase in our paid customer base and the increase in average
revenue per transactions was primarily attributable to an increase in the average declared value per package. As a percentage of
total revenue, insurance revenue was 2% in each of 2008 and 2007.
PhotoStamps revenue decreased 34% to $11.9 million in 2008 from $17.9 million in 2007. The decrease in revenue was
primarily attributable to a decrease in the number of sheets shipped. PhotoStamps sheets shipped during 2008 was approximately
712,000, a 35% decrease compared to 1.1 million in 2007. Average revenue per sheet shipped for 2008 was $16.68, a 2%
increase compared to $16.34 for 2007. We believe the decrease in PhotoStamps sheets shipped was primarily attributable to the
weaker general economy and our reduction in PhotoStamps consumer sales and marketing spending. As a percentage of total
revenue, PhotoStamps revenue decreased approximately seven percentage points to 14% in 2008 from 21% in 2007.
Because of the expiration of a licensing agreement in June 2007, we did not have any other revenue in 2008, compared to
$907,000 in 2007.
Cost of Revenue
Cost of revenue principally consists of the cost of customer service, certain promotional expenses, system operating costs,
credit card processing fees, the cost of postage for PhotoStamps, image review, printing and fulfillment costs for PhotoStamps,
parcel insurance offering costs, customer misprints and products sold through our Supplies Store and the related costs of
shipping and handling. Total cost of revenue decreased 9% in 2008 to $22.9 million from $25.3 million in 2007. As a percentage
of total revenue, cost of revenue decreased three percentage points to 27% in 2008 compared to 30% in 2007.
Cost of service revenue increased 7% to $10.4 million in 2008 from $9.7 million in 2007. The increase in cost of service
revenue is primarily attributable to higher customer support related expenses resulting from expanding our support personnel and
efforts to improve the overall customer experience. Promotional expenses, which includes free postage and a free digital scale
offered to new customers, are included in cost of service revenue. Promotional expenses were approximately $791,000 and $1.7
million during 2008 and 2007, respectively. The decrease in promotional expense is primarily attributable to a change in our
estimate of future coupon redemptions made during 2008. 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