When Stamps.com (NASDAQ: STMP) released fourth-quarter 2018 results in February, shares plummeted more than 50% as the company revealed it would terminate its exclusive partnership with the U.S. Postal Service. CEO Ken McBride warned at the time that, while the move meant Stamps.com would be able to "fully embrace partnerships with other carriers," it would also mean enduring "some short-term pain [...] over the next few years."
But few investors expected this kind of pain. On Thursday, shares of the online postage and shipping solutions specialist are down another 55% as of this writing following its first-quarter 2019 release, which included a hefty reduction to its full-year guidance.
Let's take a closer look at what happened, and what investors can expect in the months ahead.
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Stamps.com results: The raw numbers
GAAP net income
GAAP net income per diluted share
Data source: Stamps.com. GAAP = generally accepted accounting principles.
What happened with Stamps.com this quarter?
- Mailing and shipping segment revenue rose 1% year over year to $132.6 million, while customized postage and other revenue grew 30% to $3.4 million.
- On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and acquisition expenses, net income fell 51% to $1.23 per share.
- Adjusted EBITDA declined 37% to $39.2 million.
- Paid customers declined 1% year over year to 756,000, monthly churn was 3.1%, and average revenue per user declined to $60.05 (down from $74.93 per user last quarter). These metrics were directly impacted by Stamps.com's discontinued relationship with the USPS.
- Stamps.com repurchased roughly 235,000 shares for $32 million this quarter. As it May 8, 2019, it had repurchased $24 million under a new $60 million repurchase plan authorized in early March. At the beginning of this month, however, the company adjusted the authorization's parameters, and now expects to buy back another $9 million under the plan between today and its expiration in September 2019.
What management had to say
"During the first quarter we continued to make progress on our efforts to evolve our strategy to more fully embrace a global multicarrier business model," stated Stamps.com chairman and CEO Ken McBride. "Our financial results for the first quarter were in line with our expectations in light of our new strategic direction."
However, for the full year of 2019, Stamps.com now expects revenue ranging from $510 million to $560 million (down from its old range of $540 million to $570 million), and GAAP net income per share of $1.15 to $2.56 (down from $2.86 to $3.76 previously). On a non-GAAP basis, that should mean 2019 adjusted EBITDA of $110 million to $150 million (down from $145 million to $165 million before), and adjusted earnings per share of $3.35 to $4.85 (down from $5.15 to $6.15 previously).
To blame, the company says, are "potential short- and long-term adverse amendments, renegotiations, changes, or termination of certain contracts between the USPS and certain of our strategic partners who are part of USPS's reseller program," of which Stamps.com only recently became aware.
During the subsequent conference call, CFO Jeffrey Carberry elaborated that Stamps.com has revenue-sharing arrangements with several of the aforementioned reseller partners, and that any resulting revenue will be negatively impacted by their respective renegotiated service agreements. He added that while Stamps.com has limited visibility into those negotiations, the company believes it's "reasonably possible" the margins and revenue related to these partnerships will start to decline in the second half of 2019.
Then again, this also appears to indicate that Stamps.com's lowered guidance represents a worst-case scenario. But considering that also seemed to be the case when it stunned shareholders with its USPS termination news three months ago, it's hard to blame the market for so aggressively bidding down Stamps.com stock again today in response.
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