Stamps.com ( Nasdaq - STMP ) -- The Empire Strikes Back

Stamps.com (STMP $25.00) reported excellent on target Q4 results.  But the company indicated that its rate of growth probably would moderate in 2012.  Stamps.com effectively penetrated the small and medium sized business market last year.  The company's traditional consumer operation has been leveling off for several years, though, mainly because individuals use the U.S. Postal Service less than they used to.  The office market was picking up the slack, along with a boost in high volume shipping accounts.  Stamps.com created a substantial backlog of commercial accounts, frequently consisting of large companies with branch offices scattered around the country.  Those deals came on line, by and large, when existing contracts to use Pitney Bowes postage meters expired.  Stamps.com's Internet download service provided a significantly less expensive alternative.

The churn rate in the consumer segment is threatening to increase.  So Stamps.com is planning to boost marketing efforts to retain existing users and replace the ones that leave.  That spending is likely to affect profit margins in the short run.  More ominous is Pitney Bowes's development of a competing Internet service.  That program hasn't been formally introduced yet.  But the market leader did recently hire a former Stamps.com marketing executive to lead the charge.  Longer term, the new strategy at Pitney Bowes could work to the company's advantage by shifting the whole industry to an Internet format.  For now, though, it probably will become more difficult to persuade Pitney Bowes customers to switch vendors.

We have reduced our 2012 earnings estimate by 14% to $.90 a share (fully taxed).  We have lowered our sales estimate by $10 million, as well, to $115 million.  Those figures could be revised upward if Stamps.com's enhanced marketing program delivers strong results, or Pitney Bowes either drags its feet or fails to launch a competitive service.  The stock is likely to be a lackluster performer until some clarity emerges.

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