Stamps.com Inc. stock plunged nearly 56% on Thursday to its lowest point in more than four years after the company slashed its full-year profit outlook, fueling investor concerns about its ability to protect margins in the absence of a key partnership with the U.S. Postal Service.
The El Segundo company, which makes software that enables customers to print postage for U.S. mail, had set its earnings forecast for the year in February, when it reported fourth-quarter results and said it had ended the USPS partnership. Although it said then that it expected the discontinuation to result in some “short-term pain,” the latest outlook suggested that pain might be more severe than anticipated.
The stock dropped 55.8% to $36.90 a share.
The more than 50% slide in Stamps.com’s shares after two consecutive quarterly results is rare, and according to George Pearkes, a macro strategist at Bespoke Investment Group, there are “zero instances” of a U.S. stock dropping 50% on earnings twice in a row at least since 2001, when Bespoke’s data begin.
Stamps said the lowered guidance mainly reflected potential unfavorable short- and long-term amendments, re-negotiations and termination of certain contracts between the USPS and the company’s partners who are part of the USPS reseller program. “It appears the USPS is now negotiating with multiple resellers for lower rates, which would negatively impact Stamps’ reseller revenues,” Northland Capital Markets analyst Tim Klasell wrote in a note to clients. He downgraded his rating on the stock to market perform from outperform.
The company said it now expected a profit of $3.35 to $4.85 a share for the full year, down from its guidance of $5.15 to $6.15 a share.
The worsening outlook drew another rating downgrade from B. Riley, as analyst Zach Cummins cut the stock to neutral from buy and slashed the price target 65% to $45. Roth Capital’s Darren Aftahi, who has the only sell rating on Stamps, cut his price target to $35 from $78.
“The super high-margin business that made the USPS relationship (exclusivity/ commission and reseller program) so attractive for STMP investors, has pivoted so quickly, that the uncertainty of cash flow over the next 2-3 years is extremely unclear,” Aftahi wrote.