Stamps.com 2010 Annual Report Download - page 35

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TABLE OF CONTENTS
Service revenue increased 5% to $64.6 million in 2010 from $61.4 million in 2009. The increase in service revenue consisted
of a 9% increase in service revenue from customers acquired through our non-enhanced promotion channels, which more than
offset the 27% decrease in service revenue from customers acquired through our enhanced promotion channel. The 9% increase
in service revenue from customers acquired through the non-enhanced promotion channels consisted of a 6% increase in
successfully billed customers and a 3% increase in average service revenue per customer. As a percentage of total revenue,
service revenue increased to 76% in 2010 from 75% in 2009, primarily as a result of the decrease in revenue from our
PhotoStamps product.
Product revenue increased 10% to $11.7 million in 2010 from $10.7 million in 2009. The increase in product revenue was
primarily attributable to the following: (1) growth in our paid customer base; (2) marketing our Supplies Store to our existing
customer base; (3) additional SKUs we added to our Supplies Store; and (4) growth in postage printed, which helps drive sales
of consumable supplies such as labels. Total postage printed by customers using our service during 2010 was $447 million, a
26% increase from $354 million in 2009. Store orders increased by 18% in 2010 compared to 2009, while the average revenue
per store order decreased by 7% in 2010 compared to 2009. As a percentage of total revenue, product revenue increased slightly
to 14% in 2010 from 13% in 2009, primarily as a result of the decrease in revenue from our PhotoStamps product.
Insurance revenue increased 27% to $2.0 million in 2010 from $1.6 million in 2009. This increase was primarily attributable
to (1) the expansion of our existing package insurance offering to cover packages being shipped to international destinations and
(2) insurance purchases resulting from our new partnership with Amazon.com. As a percentage of total revenue, insurance
revenue was unchanged at 2% in each of 2010 and 2009.
We reduced our PhotoStamps sales and marketing spending in 2010 compared with 2009 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 16% to $7.2 million in 2010 from $8.5 million in 2009. Total PhotoStamps sheets
shipped during 2010 was approximately 410,000, a 17% decrease compared to 491,000 in 2009. Average revenue per sheet in
2010 was $17.48, a 1% increase compared to $17.29 in 2009. As a percentage of total revenue, PhotoStamps revenue decreased
to 8% in 2010 from 10% in 2009.
Cost of Revenue
Cost of service revenue principally consists of the cost of customer service, certain promotional expenses, system operating
costs, credit card processing fees and customer misprints that do not qualify for reimbursement from the USPS. Cost of product
revenue principally consists of the cost of products sold through our Mailing & Shipping Supplies Store and the related costs of
shipping and handling. The cost of insurance revenue principally consists of parcel insurance offering costs. Costs of
PhotoStamps revenue principally consists of the face value of postage, image review costs and printing and fulfillment costs.
Total cost of revenue increased 3% to $23.7 million in 2010 from $22.9 million in 2009. As a percentage of total revenue, cost of
revenue was unchanged at 28% in 2010 and 2009.
Cost of service revenue increased 12% to $13.3 million in 2010 from $11.9 million in 2009. The increase is primarily
attributable to an increase in promotional expenses, which include free postage and free digital scale offered to new customers.
Promotional expenses were $2.7 million and $1.7 million during 2010 and 2009, respectively. The increase in promotional
expense is attributable to increased acquisition of new customers and a new method of offering promotional items to customers
which increased promotional redemption rates. 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 16% in 2010 as compared to 14% in 2009.
Cost of product revenue increased 9% to $4.3 million in 2010 from $4.0 million in 2009. The increase in these costs was
consistent with the 10% increase in product revenue during the same period. As a percentage of total revenue, cost of product
revenue was 5% in both 2010 and 2009.
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