Stamps.com (“Stamps”) offers service that is cheaper than its competitors’. Unlike chief rival Pitney Bowes, Stamps customers don’t need to purchase or rent postage meters. Postage meters commonly involve a monthly service fee, plus added costs for maintenance, insurance and toner cartridges (which can run hundreds of dollars). Additionally, Stamps’ service can be canceled without penalty. Pitney Bowes customers enter into a lengthy lease with steep cancellation fees. Pitney Bowes deployed a Web-based postage service in 2004, in conjunction with eBay. Endicia (owned by Newell/Rubbermaid), Stamps’ other competitor, traditionally operated in large volume shipping, but now offers services similar to Stamps. Endicia offers a basic plan for $9.95 a month. Stamps has no other direct competition, as the USPS has licensed only these three companies.
Stamps has over 400,000 customers, and that number is growing. The company estimates there are 50 million potential customers in the United States. We estimate Stamps’ market share could increase from the current 0.8% to around 5% (2.5 million customers). Businesses are defecting from Pitney Bowes, whose machines cost up to 80% more per month to operate than Stamps. However, considering the steep buyouts, most companies are waiting until their leases end with Pitney before switching to Stamps.
In addition to the cost savings, larger companies are embracing Stamps’s software. The software, which is included at no extra cost, automatically manages and records orders and shipments for a company’s remote offices. It can also be combined with various e-commerce sites like Amazon and eBay, which aids smaller businesses.
Convenience is the company’s main allure. Customers simply print out exact postage instead of taking lengthy trips to the post office. Stamps can be printed out individually or in bulk. All mailing addresses are automatically verified (using the USPS database) by Stamps beforehand, so customers won’t waste postage by shipping to undeliverable locations. Several small business customers have noted that the printed postage looks more professional than traditional stamps. Stamps keeps an easily accessible history of every parcel a user sends for straightforward record keeping. The company’s service was integrated with Amazon.com Marketplace in July 2010. Stamps won a contract to provide electronic postage for the USPS Click-N-Ship service last February.
Customers also enjoy discounted postage rates, and other services. Users receive discounts of up to 15% off for Priority Mail and up to 21% off Express Mail. Customers that meet certain volume benchmarks qualify for larger discounts: up to 28% off Priority, and up to 32.5% off Express. Delivery confirmation costs between 40 and 70 cents less per package than it would at a post office. However, with the monthly service fees that apply, Stamps is not ideal for infrequent mailers.
It remains to be seen how the decay of the USPS will affect Stamps. The company could mop up customers from areas where offices scale back hours or are closed altogether. But by the same token, businesses may cut back on mailing should the Postal Service decide to do the same with delivery hours and routes.
Revenue should make a significant leap in 2011, after holding steady around $85 million the last four years. We project year end revenue of $100 million, up 17% from $85.5 million last year. We anticipate fully taxed earnings per share of $.85 for the year, an 85% increase from $.46 in 2010. Share earnings could jump another 24% to $1.05 for 2012. Diluted shares outstanding should increase to 16.5 million to 17.0 million in the fourth quarter 2011, from 15.5 million.
Target revenues of $200 million are realistic in the next two to three years, with fully taxed EPS of $2.00. Stamps has more than $200 million in tax loss carryforwards, so it won’t have to pay cash taxes for five to seven years. Earnings excluding income taxes would be $3.00 a share. We anticipate a target price of $50 a share, an appreciation potential of 100% from the current quote.
Stamps is based in Los Angeles, CA.
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