Bear of the Day: Stamps.com (STMP)

Shares of Stamps.com (STMP) plummeted roughly 50% last month after it announced that it would end its exclusive shipping partnership with the United States Postal Service. The internet-based shipping services company faces a more competitive environment than ever before and its 2019 estimates are heading in the wrong direction.

Overview

Stamps.com was founded in 1996 as a way to help consumers mail everything from packages to letters more conveniently by printing shipping information, such as postage and shipping labels, from their own computers. Today the firm has become a go-to for many small businesses, home offices, and corporations. Stamps.com, which also offers shipping software, is coming off an impressive fourth quarter of 2018, when it saw its revenue soar 29% to reach $170.2 million.

Unfortunately for investors, Stamps.com executives said on the firm’s earnings call that it ended its exclusive shipping partnership with the United States Postal Service. The company tired to negotiate a new deal that would allow the firm to move beyond its exclusive relationship with the federally owned postal agency, but USPS declined. “So at this point, we've decided to discontinue our shipping partnership with the USPS so that we can fully embrace partnerships with other carriers who we think will be well positioned to win in the shipping business in the next five years,” CEO Ken McBride said on Stamps.com’s earnings call.

The company’s decision highlights Amazon’s (AMZN) increasing threat to the shipping industry as it expands its business. At the same time, FedEx (FDX), UPS, and others have introduced aggressively priced programs to try to target some of Stamps.com’s e-commerce customers.

With that said, the move should help the firm become more competitive in the long run in a more crowded industry. “When our customers are offered services such as shipping with Amazon, FedEx One Rate, UPS’s new products, regional carriers, Uber shipping, ship from store and everything else, we have to bring those solutions to our customers,” Stamps.com’s CEO explained.

Outlook & Earnings Trends

Looking ahead, the company’s USPS decision seems as though it might hurt its top and bottom-lines in the near-term. STMP’s first quarter fiscal 2019 revenue is projected to slip just under 5% to hit $126.97 million. Meanwhile, the company’s full-year revenues is expected to sink 5.7% to touch $553.24 million.

Stamps.com’s 2019 outlook appears much worse at the bottom end of the income statement. STMP’s adjusted Q1 earnings are projected to tumble 67% to $0.70 a share. The company’s second-quarter 2019 earnings are expected to fall over 64%, with full-year earnings projected to dive roughly 60%.

Furthermore, we can see just how much all of the company’s consensus earnings estimates have fallen recently. For example, Stamps.com’s 2019 earnings estimate plummeted 57% from $9.36 a share 30 days ago, to its current $3.95 a share.

 

 

Bottom Line

Stamps.com is currently a Zacks Rank #5 (Strong Sell) based in part on its negative earnings outlook and trends. The company also rocks “D” grades for both Growth and Momentum in our Style Scores system. And investors should note that despite its strong fourth-quarter 2018 revenue growth, Stamps.com’s total paid customers remained flat from Q4 2017 at 736,000.

The company did see its average revenue per paid customer surge last quarter as it tries to land shippers. Still, not significantly adding to its customer base is somewhat worrisome. Stamps.com stock hovered at roughly $87 per share through late afternoon trading Friday. This marked a 70% downturn from its 52-week high of $285.75 a share.

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