(STMP) 10K notes

Here’s another one on, which I had written sometime back. Notes are dated 12 Sept 2014.



Company (NASDAQ: STMP); closing price on 09/12/2014 $31.73

Business overview is a leading provider of software-based postage services. enables its 500,000 customers to print US Postal Services approved stamps using a PC, printer, and Internet connection without visiting a retail postal outlet.

Value proposition

SMEs are’s primary customer. These customers save time by having the flexibility of printing stamps 24/7 without visiting a UPSC retail outlet. Large volumes of shipping labels can be printed quickly. Shipping details can be integrated with customer databases or e-commerce systems. Additionally, customers receive discounts over retail UPSC prices (e.g., 1c for First Class letter, unto 54% for domestic packages, unto 13% for international packages, discounts on tracking)

Company strategy and advantages

  1. Stamps’ primary customer base has been the small business owner. Stamps continues to focus its marketing spend on bringing in these small business owners because its internal research suggests that the expected lifetime value of these customers is more than twice the acquisition cost of this customer type.

  2. Stamps’ professional shipper plan is targeted at high volume shippers such as warehouses, fulfilment centres, e-commerce merchants, and large retailers. They offer direct integration into customer’s order databases, and also integrations with many of the leading multi-carrier shipping and warehouse management systems. Stamps’ software also integrates directly into the most popular e-commerce platforms, which allows web store managers to automate the order fulfilment process.

Stamps continues to attract high volume shippers. Postage printed by high volume customers was up 37% in 2013 versus 2012. Stamps continues to invest in this area, with emphasis on technology/integration enhancements (new integrations, scalability, features, etc).

For warehouse shipping integration, see:

For e-commerce integration, see

  1. In June 2014, Stamps’ announced the acquisition of ShipStation, a leading web-based shipping software solution that allows online retailers and e-commerce merchants to organise, process, and fulfil orders. ShipStation supports automatic order importing from over 40 shopping carts and marketplaces, including eBay, Amazon, Shopify, Bigcommerce, Volusion, and Squarespace.

ShipStation offers multi-carrier shipping options (e.g., DHL, UPS, FedEx), taking stamps beyond its UPSC heritage.

ShipStation was purchased for $50 million (cash) plus performance-linked earn-out consideration of up to 768,900 shares of STMP. ShipStation is stated to operate as an independent, wholly-owned subsidiary, led by the existing management team.

For more details, see…

  1. E-commerce has big tail winds, and stamps’ should be able to leverage the e-commerce opportunity. As such, this is a picks and shovels play on e-commerce.

  2. This is a capital-light business with high margins. Gross margin was 78.5% in 2013. Net profit margin was 34.5% in 2013.


  1. Although stamps’ is diversifying its shipping options, its still largely tied to UPSC with its many SME customers. Therefore, it will be affected by postal reforms, delivery changes by UPSC, UPSC regulations/fees etc. The ShipStation acquisition does address this concern to a large extent.

  2. For UPSC related online postage services, stamps’ competes with Pitney Bowes (NYSE: PBI; market cap of 4.5B) and, a wholly-owned subsidiary of Newell Rubbermaid (NYSE:NWL; market cap of 9.4B). Both PBI and NWL are big corporations and its not clear how stamps’ can defend itself if PBI/NWL get into a pricing war. Stamps’ also needs to keep up innovations to maintain its lead.

  3. (This is not a business related point.) Stamps’ has federal and state net operating losses (NOL) carry-forwards of approximately $200 million and $95 million, respectively. NOL may be impaired if a change of ownership is triggered as per Internal Revenue Code (Section 382). The board of directors had NOL protective measures in place (which restricted 5% share ownership; restricted additional ownership of those with 5% ownership etc). NOL could potentially limit takeover (at a premium).

Follow-up questions

  1. How much skin do the executives/directors have in the company? I usually like to invest in a business where management’s interests are aligned with those of the shareholders.

  2. The ShipStation acquisition is interesting. In the years ahead, ShipStation could potentially become larger than Stamps’ traditional UPSC postage solutions. However, I would like to understand the competition landscape here. My cursory search suggests a number of alternatives to ShipStation: Ordoro, Order Cup, and SpainBox. I found this link interesting and useful to get an initial sense of the competition:…

  3. Revenue growth rate seems to be in a steady decline mode.

Year		Revenue	     YoY %
FY 10		$85,544
FY 11		$101,585     18.8%
FY 12		$115,661     13.9%
FY 13		$127,819     10.5%

Q1 14 versus Q1 13 revenue growth was 3.7%, and Q2 14 versus Q2 13 revenue growth was 6.8%. So, the trend is not looking good. I would like to understand what is going on with respect to revenue growth.