STMP does it again

Investment Analysis Clubs Saul’s Investing Discussions
1

A few months ago, I explained why I bought Stamps.com shares (again): http://discussion.fool.com/why-i-bought-stmp-again-32611029.aspx…

I bought a 3% position at over $130 (ugh), but then was able to add twice at around $105. I had more than doubled my shares, and even though the stock price was down, my position was up to 5.7% at the end of April.

Stamps reported on their March quarter yesterday, and things are looking incredible. Here are the metrics I’m looking at most:

ARPU

M16: $40.65
J16: $42.06
S16: $45.05
D16: $50.44

M17: $47.36 (up 17%)

note: ARPU is a lever that positively influences revenue, margins, profit, etc

Revenue

M16: 82M
J16: 84M
S16: 93M
D16: 106M

M17: 105M (up 28%)

PS ratio is around 5.7.

EPS

As I mentioned in the postscript last time, they had to make a non-GAAP change (to regular cash payer, whatever that means…I think I’ve heard something similar from other companies?) so I don’t know if they’ve broken it down by quarter. They said 5.50 total EPS for 2016 under the new system.

M16: 1.13
J16:
S16:
D16:

M17: 1.83 (up 62%)

5.50 minus 1.13 plus 1.83 = 6.20. That’s their TTM EPS as far as I can see. Shares are at about 118 right now, so PE = 19.

Raised guidance across the board

We expect total 2017 revenue to be in a range of approximately $405 million to $430 million; this compares to previous guidance of $400 million to $425 million

We expect GAAP net income per fully diluted share to be in a range of approximately $4.78 to $5.69; this compares to previous guidance of $4.20 to $5.10

We expect non-GAAP adjusted EBITDA to be in a range of approximately $205 million to $225 million; this compares to previous guidance of $200 million to $220 million.

We expect non-GAAP adjusted income per fully diluted share is expected to be in a range of $7.00 to $8.00; this compares to previous guidance of $6.00 to $7.00.

Excluding the depreciation and amortization expense, stock-based compensation expense, interest expense and other income, net and income tax expense, we expect non-GAAP adjusted EBITDA to be in a range of approximately $205 million to $225 million; this compares to previous guidance of $200 million to $220 million.

details here: http://investor.stamps.com/releasedetail.cfm?ReleaseID=10243…

Happy to see shares up of course, but I’m still thinking I might add a bit. Not sure if I’ll wait hoping for a dip or not…I have a 6%+ position already. If I didn’t own STMP, I would definitely at least start a small position. It’s still cheaper than it was 3 months ago!

Bear

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Well today was a bad day for STMP shareholders. Pitney Bowes, a much larger enterprise than Stamps and one that has shown it’s not worried about margins, offered Stamps’s services for $5/month. Stamps offers theirs at 15.99.

This is an obvious problem, but when you think about the fact that Stamps’s monthly ARPU is around $50, the idea of losing 20% or more to compete on price with Pitney is fairly disheartening. Aside from taking a 20% hit to revenue if that happened, margins would be absolutely wrecked.

The Bezos quote, “Your margin is my opportunity,” certainly comes to mind. Pitney has never been confused with Amazon, but they’re taking a page out of an awfully successful playbook.

I sold all my STMP shares today. Maybe they’ll outcompete Pitney somehow, and the stock will keep doing well for years. But this is truly a game changer. This thing went into my “too difficult” category as soon as I saw the press release. I didn’t want to lose 5-10% in one day on my mid sized position, but I still believe that shedding the question marks and adding where I have conviction is the way to achieve the best results.

Bear

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Seems like a wise decision to me, Bear.

AJ