Stamps.com 2014 Annual Report Download - page 23

We may be exposed to risks and costs associated with the collection of credit card data and the secure transmission of confidential
information over public networks.
A significant portion of our customer transactions requires the collection of certain customer data, such as credit card information. We and other
parties involved in processing customer transactions must be able to transmit confidential information, including credit card information,
securely over public networks. Third parties may have the technology or knowledge to breach the security of customer transaction data.
Although we have security measures related to our systems and the privacy of our customers, we cannot guarantee these measures will
effectively prevent others from obtaining unauthorized access to our information and our customers’ information. Any person who circumvents
our security measures could destroy or steal valuable information or disrupt our operations. A security breach could cause customers to lose
confidence in the security of our services or websites. Any security breach could also expose us to risks of data loss, litigation and liability, and
could seriously disrupt operations and harm our reputation, any of which could adversely affect our financial condition and results of operations.
In addition, state and federal laws and regulations are increasingly enacted to protect consumers against identity theft. These laws and
regulations will likely increase the costs of doing business and if we fail to implement appropriate security measures, or to detect and provide
prompt notice of unauthorized access as required by some of these laws and regulations, we could be subject to potential claims for damages and
other remedies, which could adversely affect our business and results of operations.
We are exposed to various risks associated with the credit and capital markets.
Our cash equivalents and investments are comprised of money market, U.S. government obligations, asset-
backed securities and public corporate
debt securities. The current global economic crisis has had an unprecedented negative impact on the global credit and capital markets. We have
unrealized losses on certain securities in our investment portfolio. Further sustained declines in the fair value of these securities could lead to an
increased risk that an other than temporary impairment exists. Uncertainties in the credit and capital markets or credit rating downgrades on any
investments in our portfolio could cause impairment to our investment portfolio, which could negatively affect our financial condition, cash
flow, and reported earnings.
Risks Related to Our Industry
Postal Reform may negatively affect or cause disruptions to our services and business.
The USPS has reached its Congressionally mandated debt limit and faces an ongoing fiscal liquidity crisis. It has embarked on cost cutting
initiatives and has asked Congress to enact various Postal Reform measures. Among the measures proposed are cutbacks in delivery schedules
(such as Saturday delivery), mail processing capability, and retail post office hours and locations. Any such changes actually approved and
implemented may adversely affect the products and services we are able to offer our customers and could therefore seriously harm our business.
Additionally, absent Congressional action, the fiscal crisis could interrupt basic USPS operations, as well as payments to USPS suppliers such as
Stamps.com, each of which could also seriously harm our business.
USPS regulations or fee assessments may cause disruptions or discontinuance of our business.
We are subject to continued USPS scrutiny and other government regulations. The availability of our services is dependent upon us continuing to
meet USPS performance specifications and regulations. The USPS could change its certification requirements or specifications for PC Postage or
revoke or suspend the approval of one or more of our services at any time. If at any time we fail to meet USPS requirements, we may be
prohibited from offering our services, and our business would be severely and negatively impacted. In addition, the USPS could suspend or
terminate our approval or offer services that compete against us, any of which could stop or negatively impact the commercial adoption of our
services. Any changes in requirements or specifications for PC Postage could adversely affect our pricing, cost of revenues, operating results and
margins by increasing the cost of providing our services.
The USPS could also decide that PC Postage should no longer be an approved postage service due to security concerns, financial difficulties
within the USPS or other issues. Our business would suffer dramatically if we are unable promptly to adapt our services to any new requirements
or specifications or if the USPS were to discontinue PC Postage as an approved postage method. Alternatively, the USPS could introduce
competitive programs or amend PC Postage requirements to make certification easier to obtain, which could lead to more competition from third
parties or the USPS itself. If we are unable to compete successfully, particularly against large, traditional providers of postage products, such as
Pitney Bowes, who enter the online postage market, our revenues and operating results will suffer.
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