Stock spotlight: Stamps.com delivering sales, profit growth
Stamps.com Inc. was typical of many companies that imploded during the dot-com crash more than a decade ago.
Flush with start-up cash, it spent recklessly on employees, sprawling office space and acquisitions.
Workers raced through the company’s 90,000-square-foot Santa Monica headquarters on Razor scooters, ate catered meals and tracked the company’s stock price with visions of riches.
Executives spoke of a day when everyone would print their own postage — and pay Stamps.com a monthly fee for the opportunity. They weren’t just printing stamps, they were printing money.
Or so they thought.
The company’s software was cumbersome, not much more convenient than a trip to the post office. In 2000, burdened by huge expenses and slow sales, the company posted a $213-million loss. The next year, it lost $210 million.
In mid-2001, Stamps named Ken McBride as chief executive. McBride slashed the workforce, moved to a much smaller space and launched a more convenient product that allowed customers to print postage and addresses on self-adhesive labels, instead of exclusively on envelopes.
Losses fell to $6.8 million in 2002, the first full year under McBride’s leadership. By 2005, the company was profitable, reporting $10.4 million in net income.
Today, most Stamps customers are small-business owners who pay $15.99 a month for the privilege of printing postage themselves. The company has a record number of subscribers, lifting revenue to a record last year as profit reached an all-time high of $38.6 million.
Because Stamps sells postage, it is tethered to the U.S. Postal Service, which lost a staggering $15.9 billion last year and recently said it would seek to end Saturday mail deliveries as a cost-cutting measure.
“It’s a concern,” McBride said. “We need them to survive. We need them to continue to deliver packages.”
McBride said he didn’t expect the cancellation of Saturday mail service to affect sales significantly. In fact, if the Postal Service closes post offices to save money, that could boost Stamps’ sales.
“That would be very positive for us because we offer an alternative to access postal services without having to go to the post office,” McBride said.
The 45-year-old executive said he has no plans to leave, which should please investors who like what he’s done.
“I’m extremely happy with my job and what I do every day,” McBride said. “I’m hoping to continue to stay around as long as the board is willing to keep me and try to drive the growth we’ve driven in the last few years.”
By the end of last year, Stamps had a record 435,000 customers signed up for its services. That’s a 13% increase from a year earlier and a positive sign for the future, McBride said.
The company’s record profit last year was 47% higher than the $26.3 million it earned in 2011. It expects record sales of $120 million to $130 million this year.
In last year’s fourth quarter, Stamps’ customers printed $401 million worth of postage, a 90% bump from a year earlier and the seventh consecutive quarter that growth exceeded 50%.
Even though that money goes to the postal service, it’s another indication of the growing popularity of the company’s services, McBride said.
Amazon.com Inc. once had a significant deal with Stamps to offer label printing for private sellers in Amazon’s marketplace. Amazon now uses its in-house label-printing business for most marketplace sales. McBride, who announced the change in October, would not estimate how much money this will cost his company.
George Sutton, an analyst at Craig-Hallum Capital Group, estimated that Amazon’s move cost Stamps more than $1 million in revenue in the final three months of 2012.
The company predicts revenue will grow this year without Amazon.
“Amazon, it’s a head wind that we’re facing this year,” McBride said. “But it’s not a very significant number relative to the overall business.”
Four analysts have the stock as a buy and one as a hold. The average one-year target price is $32.13 a share.
“Successfully billed customers were well ahead of our estimate, churn was much lower and cost per new acquired customer was also lower,” said analyst Kevin Liu at B. Riley & Co. “As they continue to add subscribers, the associated revenue growth will mitigate the loss” of Amazon’s business.
“Aside from one thing — Amazon — it appeared to be a solid quarter,” said Sutton. He said investors over-sold Stamps shares after learning about Amazon’s decision.
“We highly encourage investors to take a detailed look at the metrics page because we believe you will compare these with the stock reaction and quickly recognize the opportunity,” Sutton said.
Stock Spotlight is a weekly profile of a notable public company in Southern California.
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