Stamps.com 2009 Annual Report Download - page 31

Download and view the complete annual report

Please find page 31 of the 2009 Stamps.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 94

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94

TABLE OF CONTENTS
increased by 1% in 2009 compared to 2008. As a percentage of total revenue, product revenue increased slightly to 13% in 2009
from 12% in 2008, primarily as a result of the decrease in revenue from our PhotoStamps product.
Insurance revenue was essentially unchanged at $1.6 million in both 2009 and 2008. As a percentage of total revenue,
insurance revenue was also unchanged at 2% in each of 2009 and 2008.
We reduced our PhotoStamps sales and marketing spending in 2009 compared with 2008 and plan to continue to reduce our
sales and marketing spending on PhotoStamps in future periods to improve profitability in that business. As a result of this
decision, PhotoStamps revenue decreased 29% to $8.5 million in 2009 from $11.9 million in 2008. Total PhotoStamps sheets
shipped during 2009 was approximately 491,000, a 31% decrease compared to 712,000 in 2008. Average revenue per sheet in
2009 was $17.29, a 4% increase compared to $16.68 in 2008. The increase in average revenue per sheet in 2009 was primarily
attributable to having a lower mix of high volume business orders, which have a lower average revenue per sheet, and having a
higher mix of consumer orders, which have a higher average revenue per sheet. As a percentage of total revenue, PhotoStamps
revenue decreased to 10% in 2009 from 14% in 2008.
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 was $22.9 million in both 2009 and 2008. As a percentage of total revenue, cost of
revenue increased slightly to 28% in 2009 compared to 27% in 2008.
Cost of service revenue increased 15% to $11.9 million in 2009 from $10.4 million in 2008. The increase is primarily
attributable to an increase in customer service costs aimed at improving our overall customer experience as well as increased
costs of our customer retention program. In addition, promotional expenses, which include free postage and free digital scale
offered to new customers, are included in cost of service revenue. Promotional expenses were $1.7 million and $791,000 during
2009 and 2008, respectively. The increase in promotional expense is primarily attributable to a change in our estimate of future
coupon redemptions that we made in the second quarter of 2008, which provided a one-time benefit in 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 period.
As a percentage of total revenue, cost of service revenue increased to 14% in 2009 as compared to 12% in 2008.
Cost of product revenue increased 13% to $4.0 million in 2009 from $3.5 million in 2008. The increase in costs is
attributable to increased product revenue as discussed above as well as higher fulfillment costs as we added an east coast
fulfillment center to reduce delivery times and improve the customer experience. As a percentage of total revenue, cost of
product revenue increased slightly to 5% in 2009 from 4% in 2008.
Cost of insurance was essentially unchanged at approximately $500,000 in both 2009 and 2008, which is consistent with
insurance revenue as discussed above. As a percentage of total revenue, cost of insurance revenue was unchanged at 1% in both
2009 and 2008.
Cost of PhotoStamps revenue decreased 23% to $6.6 million in 2009 from $8.5 million in 2008, corresponding to the
decrease in PhotoStamps revenue as discussed above. The gross margin from PhotoStamps is significantly lower than that of our
other sources of revenue because we include the stated value of USPS postage as part of our cost of PhotoStamps revenue.
PhotoStamps cost of revenue decreased by less than revenue resulting in a decline in PhotoStamps gross margin in 2009
compared to 2008. The decrease was attributable to less fixed cost leverage with the PhotoStamps revenue decline and to higher
postage costs as a percent of revenue as postal rates increased in May of 2009; we did not increase the price of our PhotoStamps
product in connection with these postal rates increases. As a percentage of total revenue, cost of PhotoStamps revenue decreased
to 8% in 2009 from 10% in 2008.
26