Stamps.com 2014 Annual Report Download - page 43

Cost of product revenue increased 5% to $5.7 million in 2013 from $5.4 million in 2012. The increase in product costs was driven by increased
product revenue. Cost of product revenue as a percentage of product revenue decreased from 37% in 2012 to 34% in 2013. The decrease was
primarily attributable to decreased fulfillment costs and to an increase in NetStamps labels revenue which have a lower cost of revenue as
compared to other products sold in our Supplies Store.
Cost of insurance revenue increased 15% to $2.7 million in 2013 from $2.3 million in 2012. The increase is primarily attributable to increased
insurance revenue resulting from increased activity by our high volume shipping customers. Cost of insurance revenue as a percentage of
insurance revenue increased from 33% in 2012 to 36% in 2013. The increase was primarily attributable to the increased level and mix of
discounted insurance rates for shippers.
Cost of PhotoStamps revenue decreased 13% to $3.7 million in 2013 from $4.3 million in 2012. Cost of PhotoStamps revenue as a percentage of
PhotoStamps revenue increased from 76% in 2012 to 79% in 2013. The increase was primarily attributable to the decrease in PhotoStamps
revenue resulting in less fixed cost leverage and an increase in the face value of the cost of postage by the USPS which we did not pass on to
customers in the form of higher pricing.
Operating Expenses
The following table outlines the components of our operating expense and their respective percentages of total revenue for the periods indicated
(in thousands except percentage):
Sales and Marketing
Sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel
engaged in sales, marketing, and business development activities. Sales and marketing expense increased 2% to $39.5 million in 2013 from
$38.8 million in 2012. The increase is primarily due to increased marketing spending to acquire customers in our Core mailing and shipping
business while spending in our Non-
Core mailing and shipping and PhotoStamps business both decreased compared to 2012. Ongoing marketing
programs include the following: customer referral programs, customer re-marketing efforts, direct mail, online advertising, partnerships,
telemarketing, and traditional advertising. Sales and marketing expenses as a percent of total revenue decreased from 34% in 2012 to 31% in
2013 as revenue grew at a faster pace than sales and marketing expenses. The decrease is primarily attributable to sales and marketing spend not
increasing as much as originally planned due to a more competitive environment in the traditional advertising and online marketing areas in 2013
as compared to 2012.
Research and Development
Research and development expense principally consists of compensation for personnel involved in the development of our services, depreciation
of equipment and software and expenditures for consulting services and third party software. Research and development expense increased 7%
to $11.0 million in 2013 from $10.2 million in 2012. The increase is primarily due to an increase in headcount-
related expenses to support our
expanded offerings. Research and development expense as a percentage of revenue was consistent at 9% in both 2012 and 2013.
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Table of Contents
2013
2012
Operating Expenses:
Sales and marketing
$
39,449
$
38,755
Research and development
10,958
10,243
General and administrative
15,794
14,750
Total operating expenses
$
66,201
$
63,748
Operating expenses as a percentage of total revenue:
Sales and marketing
31
%
34
%
Research and development
9
%
9
%
General and administrative
12
%
13
%
Total operating expenses
52
%
55
%