Stamps.com 2014 Annual Report Download - page 42

Product revenue increased 13% to $16.6 million in 2013 from $14.7 million in 2012. The increase was primarily attributable to the following:
(1) increase in NetStamps label sales; (2) growth in our paid customer base; (3) the postal rate increase in January 2013, which generated
incremental label sales for the period of time around the rate increase; (4) marketing our Supplies Store to our existing customer base; and (5)
growth in postage printed, which helps drive sales of consumable supplies such as labels. Total postage printed by customers using our service in
2013 was $1.6 billion, a 36% increase from the $1.1 billion printed in 2012.
Insurance revenue increased 6% to $7.5 million in 2013 from $7.1 million in 2012. This increase was primarily attributable to increased
insurance purchases by our high volume shippers, partially offset by a reduction in insurance revenue through our Amazon partnership.
We continued to reduce our PhotoStamps sales and marketing spending in 2013 compared with 2012, and plan to continue to reduce our sales
and marketing spending on PhotoStamps in future periods to maintain or improve profitability in that business, although we believe that there
may be potential opportunities to grow the business in a better economic environment. As a result of this decision PhotoStamps revenue
decreased 17% to $4.7 million in 2013 from $5.7 million in 2012. Total PhotoStamps sheets shipped in 2013 decreased 20% to 255 thousand
compared to 2012 and average revenue per PhotoStamps sheet shipped increased 4% to $18.50 in 2013 compared to 2012. The decrease in
sheets shipped was primarily attributable to our lower marketing spend and the increase in average revenue per sheet shipped was primarily
attributable to less discounting on custom negotiated pricing.
Cost of Revenue
The following table shows cost of revenues and cost of revenues as a percentage of its associated revenue for the periods indicated (in thousands
except percentage):
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. Cost of PhotoStamps revenue principally consists of the face value of postage,
customer service, image review costs, and printing and fulfillment costs.
Cost of service revenue decreased 2% to $15.4 million in 2013 from $15.7 million in 2012. The decrease in cost of service revenue is primarily
attributable to lower promotional expense as a result of a decrease in our coupon redemption rate, partially offset by higher system operating
costs, credit card processing fees and customer service costs reflecting the growth in our business and our associated investments to support that
growth. 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. Promotional expense
decreased 32% to $2.4 million in 2013 from $3.5 million in 2012. The decrease in promotional expense is primarily attributable to fewer
customers acquired and to lower coupon redemption rates.
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Table of Contents
2013
2012
Cost of Revenues
Service
$
15,422
$
15,720
Product
5,694
5,435
Insurance
2,685
2,334
PhotoStamps
3,699
4,267
Total cost of revenues
$
27,500
$
27,756
Cost as percentage of associated revenue
Service
16
%
18
%
Product
34
%
37
%
Insurance
36
%
33
%
PhotoStamps
79
%
76
%
Total cost as a percentage of total revenues
22
%
24
%