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Stamps.com Online Postage Due, but First an IPO

TIMES STAFF WRITER

Plenty of Internet companies have staged successful initial public offerings despite a glaring lack of profits. This month, Internet postage retailer Stamps.com plans to go public despite a complete lack of revenue.

The Santa Monica firm has not taken in a cent since it was founded by three UCLA business school students in 1996--and won’t at least until the U.S. Postal Service approves its system.

To get there, Stamps.com had to submit detailed proposals for the system, which the Postal Service evaluated to make sure it met its stringent security standards. Then it commenced a year of carefully monitored field tests with increasingly larger groups of customers. The company is in its final phase of testing, and it expects to launch the service this summer.

At that point, customers who have a computer, Internet connection and laser or inkjet printer will be able to download postage from a Stamps.com server and print it directly onto envelopes. Users would have to download special software from the Stamps.com Web site or install it from a CD-ROM, but no additional hardware is required. Unlike bricks-and-mortar post offices, Stamps.com’s Web site will be open for business all day and all night, including Sundays. The company expects to charge a 10% convenience fee from its customers.

When the service wins final approval, as is widely expected, it will be greeted by a growing population of online shoppers. Market researcher International Data Corp. estimates the number of Web users worldwide will multiply from about 100 million in 1998 to 319 million by 2002 and that the proportion buying goods and services online will rise from about 26% to 40%.

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Small businesses and home offices--two markets Stamps.com plans to target--are expected to grow from 44.7 million in 1998 to 57.6 million by 2002, according to IDC.

Demand for postage is growing too. Of the $58 billion in postage sold last year, $38.9 billion was first-class, priority and express mail, according to the Postal Service’s annual report. Keenan Vision, an independent research firm, estimates that segment will grow to $46.2 billion by 2002.

That potential market is more important than the company’s lack of revenue, said Tom Taulli, a market analyst who focuses on high-tech IPOs. He expects Stamps.com’s stock to rise a few dollars above its offering price in its first day of trading.

“A lot of biotech companies go public with zero revenue and a potential product based on regulatory approval,” Taulli said. “But this is a lot less risky than biotech.”

Although the company has no sales, it certainly knows how to raise money. A group of investors led by Paul Allen’s Vulcan Ventures and Chase Capital Partners gave Stamps.com a $30-million cash infusion in February. The company has also recruited several high-profile executives to its board of directors, including former U.S. Postmaster General Marvin Runyon, former USPS Chief Marketing Officer Loren Smith and GeoCities founder David Bohnett.

Those moves have impressed Wall Street, as do the strategic partnerships Stamps.com has forged with America Online, Intuit and Office Depot, among others. The prospect that it will be the first company to get approval to sell stamps on the Internet is another advantage, though it also carries some risk, said Gail Bronson, senior analyst for IPO Monitor in Palo Alto.

“They’re asking the general consumer to make a paradigm shift, and that’s always a big challenge in any business,” Bronson said. “They may be right on the money, or they may be the pioneers that get the arrows in the back. It remains to be seen.”

Even if Stamps.com gets an early lead, competitors won’t be far behind. Three other companies are on their way toward getting the same Postal Service approval Stamps.com covets. The first of them is likely to be San Mateo start-up E-Stamp, which is also in its final stage of beta testing. Close behind are two large postal companies--Pitney Bowes of Stamford, Conn., and Neopost of Hayward, Calif.--that already make postage meters.

Pitney Bowes is already playing hardball with its prospective rivals. In the last two weeks, the company has sued both Stamps.com and E-Stamp for patent infringement. Both companies deny the charges.

“We do not believe the Pitney Bowes lawsuit has any merit, and we intend to aggressively defend our position,” said John Payne, Stamps.com’s president and chief executive.

Meanwhile, on Friday, the Justice Department revealed it is investigating Pitney Bowes for “anti-competitive conduct” relating to “postage meter technology,” said spokeswoman Jennifer Rose. She could not say whether the inquiry was prompted by the twin lawsuits.

Pitney Bowes representative Sheryl Battles said the company is in full compliance with antitrust laws and is “confident this inquiry will be resolved favorably.”

Stamps.com could raise as much as $63.25 million by selling up to 5.75 million shares between $9 and $11. BancBoston Robertson Stephens is the lead underwriter, with Thomas Weisel Partners and Volpe Brown Whelan & Co. also managing. After the offering, which could come as early as this week, the stock will trade on Nasdaq under the symbol STMP.

Times staff writer Karen Kaplan can be reached at karen.kaplan@latimes.com.


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