Stamps.com 2009 Annual Report Download - page 36

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TABLE OF CONTENTS
Cost of Revenue
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 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. As a percentage of total revenue,
cost of service revenue increased to 12% in 2008 as compared to 11% 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 include 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 period.
Cost of product revenue increased 7% to $3.5 million in 2008 from $3.3 million in 2007. The increase in cost of product
revenue was primarily attributable to the increase in store sales and higher fulfillment costs in 2008 compared with 2007. As a
percentage of total revenue, cost of product revenue was 4% in both 2008 and 2007.
Cost of insurance revenue increased 9% to approximately $498,000 in 2008 from $455,000 in 2007. The increase in cost of
insurance revenue was primarily attributable to both an increase in the number of insurance transactions and an increase in the
average cost per insurance transaction. As a percentage of total revenue, cost of insurance revenue was unchanged at 1% in 2008
and 2007.
Cost of PhotoStamps revenue decreased 28% to $8.5 million in 2008 from $11.9 million in 2007, corresponding to the
decrease in PhotoStamps revenue. As a percentage of total revenue, cost of PhotoStamps revenue decreased to 10% in 2008 from
14% in 2007.
Because of the expiration of a licensing agreement in June 2007, we did not have any cost of other revenue in 2008
compared to approximately $52,000 in 2007.
Sales and Marketing
Sales and marketing expense increased 1% to $33.5 million in 2008 from $33.1 million in 2007. As a percentage of total
revenue, sales and marketing expense increased to 40% in 2008 from 39% in 2007. The increase, both on an absolute basis and
as a percentage of total revenue, is primarily due to the increase in various marketing program expenditures relating to the
acquisition of customers for our PC Postage business, partially offset by a decrease in marketing expenditures related to
PhotoStamps.
Research and Development
Research and development expense increased 2% to $8.4 million in 2008 from $8.3 million in 2007. The slight increase is
mainly attributable to increased headcount related expenses. As a percentage of total revenue, research and development expense
was 10% in 2008 and 2007.
General and Administrative
General and administrative expense increased 24% to $15.6 million in 2008 from $12.5 million in 2007. As a percentage of
total revenue, general and administrative expense increased to 18% in 2008 from 15% in 2007. The increase, both on an absolute
basis and as a percentage of total revenue, is primarily attributable to the increase in legal expenses relating to existing litigation.
Other Income, Net
Other income, net decreased 35% to $2.9 million in 2008 from $4.5 million in 2007. This decrease is mainly attributable to
lower interest income resulting from lower interest rates and lower investment balances as we sold certain investments and used
the cash to repurchase shares of our common stock.
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