An evaluation of Stamps.com, which will help you follow some of my thinking.
Recently a MF service mentioned STMP as a Best Buy Now. (By the way, I subscribe to MF RB and MF SA. I know some are reluctant to subscribe but I feel it’s well worth it for the recommendations of stocks you’d never hear of otherwise, and for the discussion boards. For example, I got Shopify from MF over a year ago and bought in at about $27. What I’ve made on that recommendation would pay for over a hundred years of subscriptions. Since I won’t live for a hundred years from now, I’m playing with house money. Just the way I think about it.)
When I saw the Best Buy Now I remembered that Bear had written about Stamps.com on our board and I looked back at his posts. Here they are, somewhat edited:
Feb 2017 – Bear’s Post
STMP has always defied logic. Even after watching them for about a year, I am a little doubtful about their ability to maintain their more than 40% net margin. But one thing they haven’t been is unpredictable. Despite the wild share price fluctuation, the company has been pumping out great results, beating expectations (even their own) and generally doing phenomenally.
Speaking of beating their own expectations, the midpoint of the revenue guidance they gave 1 year ago was 300M. Well they just clocked in at 364M for 2016. Ha! Now they’re saying 400 - 425M for 2017. I feel like they know they’ll crush that, but they’re just saying what the market was already expecting.
So why is the market not expecting more? It just seems like the market is always waiting for an “other shoe” that never seems to drop. Instead they just keep killing it. Compare that anemic 13% revenue growth guidance to these results:
Dec quarter:
Revenue was up 52% YoY
EPS was up 74% YoY
2016:
Revenue was up 70%
EPS was up 96%
I’ve only got a 3% position and I’ll probably leave it alone unless the market decides to offer me shares for a 20% discount.
They actually give all kinds of guidance, including Adj EPS. They had to restate their adjusted earnings so that 2016 will be $5.88 instead of $8.70. They’re guiding for $6.00 - $7.00 in 2017.
Saul Here – I was wondering about that restatement. It turns out they had a lot of tax write-offs in 2016 and paid almost no taxes. They wrote off all the remainder in the Mar 2017 quarter so they are restating adjusted earnings in all 2016 quarters as if they had paid 32.5% tax, and will do the same in 2017. GAAP will continue to show all the exaggerated incorrect earnings without taxes. The restatement of adjusted earnings sounds very legitimate to me.
May 2017 – Another post from Bear
A few months ago, I explained why I bought STMP shares (again):
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:
Average Revenue per User (ARPU)
Mar 16: $40.65
Jun 16: $42.06
Sep 16: $45.05
Dec 16: $50.44
Mar 17: $47.36 (up 17%)
Revenue (millions)
Mar 16: $82
Jun 16: $84
Sep 16: $93
Dec 16: $106
Mar 17: $105 …(up 28%)
PS ratio is around 5.7.
Earnings
As I mentioned in the postscript last time, they had to make a non-GAAP change, so I don’t know if they’ve broken it down by quarter. They said $5.88 total EPS for 2016 under the new system.
Mar 16: 1.13
Mar 17: 1.83 (up 62%)
6.58 is their TTM EPS as far as I can see. Shares are at about $118 right now, so PE = 18.
Raised guidance across the board
2017 revenue to be $405 million to $430 million; up from previous guidance of $400 million to $425 million
Adj EPS of $7.00 to $8.00; up from previous guidance of $6.00 to $7.00.
Happy to see shares up of course, but I’m still thinking I might add a bit. 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!
Saul Here – Wow, revenue up 70% last year. Let’s take more of a look. Well revenue was up 90% to 100% for the first three quarters of 2016, then 50% in the fourth quarter, and 28% in the first quarter of 2017. What’s going on? In 2015, revenue was just up 25% to 28% as I remember.
There was only one answer, a big acquisition at the end of 2015. And sure enough, that’s what it was. They bought a big competitor in Nov 2015. Those huge numbers for 2016 were a mirage. On the other hand 28% revenue growth isn’t bad. And they are also paying down debt and repurchasing shares.
Then I discovered that in May of this year, Bear sold out of his position.
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’ services for $5/month. Stamps offers theirs at 15.99.
This was getting complicated and unattractive, but then I read some posts on the Stamps board [why you should subscribe] about why you shouldn’t sell out. They pointed out that Pitney’s offer was a limited time only offer (and those usually revert to normal rates), and that Stamps was integrated with a lot of e-commerce sites like amazon, etsy, eBay, Shopify, etc and is into facilitating package sending by UPS and Fedex as well as the postal service. Also that Pitney isn’t much of a competitor as its sales have declined every year since the recession. Also that Stamps has a churn rate of only 2%! Okay, I’m ready to buy on Monday.
Saul Here Then on the weekend amazon sent this out to their shipping clients:
Effective July 15, Stamps.com shipping options will be removed from Amazon’s Buy Shipping Services. There is no action required from you as all the equivalent USPS shipping options will be available for domestic shipments at Commercial Plus prices. There is also no transaction fee charged on USPS shipping options.
Saul Here Wow! Amazon unbundling them! Stamps announcement to its clients may be responding to the same postal service memo:
Dear Stamps.com customer,
Starting August 1, 2017 the USPS plans to change the way that they handle under-paid and over-paid postage amounts for packages by implementing a new Automated Package Verification (APV) system.
Under the current system:
• Under-paid packages are either rejected by the USPS or delivered “postage due” to the recipient. This causes either late deliveries or a bad customer experience.
• Nothing is done to handle over-paid packages. Shippers lose whatever amount they have overpaid.
Under the planned APV system:
• Identified under-paid packages will be delivered without delay, and the shipper’s account balance will be deducted for the amount of under-paid postage.
• When over-paid packages are identified, the shipper’s account balance will be credited for the amount of over-paid postage.
Stamps.com is being updated to support this new system. Once APV goes into effect on August 1, 2017, we will be able to process USPS issued debits and credits for underpaid and overpaid postage to your account balance.
Saul Here - So amazon unbundled Stamps, but who knows, may reinstate them as soon as Stamps’ new program is up and running, but this goes into the “Too hard to figure out” basket for now.
Saul
For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.
A link to the Knowledgebase is also at the top of the Announcements column
that is on the right side of every page on this board