Shares of Stamps.com (STMP) plunged in morning trading after the company gave a much weaker-than-expected forecast for 2019 along with an announcement that it had ended its exclusive partnership with the U.S. Postal Service.
EARNINGS AND GUIDANCE: On Thursday after the market close, Stamps.com reported fourth quarter adjusted earnings per share of $3.73 on revenue of $170.2M, above analysts' estimates calling for EPS of $2.90 and revenue of $160M. Adjusted EBITDA for the quarter was $71.3M, up 11% from last year. In a statement, chairman and Chief Executive Officer Ken McBride said, "We achieved strong financial results driven by exceptional execution in our shipping business and we completed our strategic acquisition of MetaPack which has positioned Stamps.com as the leading global e-commerce shipping software company. We are well positioned to successfully compete on a global scale with a focus on driving long-term value for our customers, partners and shareholders."
Looking ahead, Stamps.com issued weak guidance for fiscal 2019, calling for EPS of $5.15-$6.15, compared to the $10.79 consensus. The company also forecast FY19 adjusted EBITDA of $145M-$165M.
DISCONTINUATION OF USPS PARTNERSHIP: Stamps.com announced on its quarterly earnings call that it will discontinue its partnership with the U.S. Postal Service. "We will no longer be exclusive to the USPS and that's non-negotiable," CEO McBride said. He added that "The USPS has not agreed to accept these terms or any other terms of our partnership proposal. So at this point we've decided to discontinue our shipping partnership with the USPS so that we can fully embrace partnerships with other carriers who we think will be well-positioned to win in the shipping business in the next five years." McBride also noted that the short-term financial impact Stamps.com will experience as it forgoes its shipping revenue share with the USPS will represent some "short-term pain" over the next two years.
ANALYST COMMENTARY: Several analysts downgraded shares of Stamps.com this morning, including Maxim analyst Allen Klee, who cut shares to Hold, saying the company's decision to shift to a multi-carrier strategy by not renewing its USPS contract adds uncertainty to its ability to rebuild new revenue. The analyst is prepared to "turn more positive upon getting greater conviction" on the company's ability to "diversify its business with new customers." Roth Capital analyst Darren Aftahi downgraded Stamps.com to Sell, telling investors in a research note that while Q4 results beat, the company's decision to discontinue its USPS partnership drove "very poor" relative 2019 guidance. With a more competitive playing field for shipping, including Amazon (AMZN), Aftahi said Stamps has made the tough decision to shift strategy to an exclusively multi-carrier global solutions shipping provider, and while this could bear fruit in the long-term, he sees many risks near-term.
Craig-Hallum analyst George Sutton cut his price target for Stamps.com to $125 and said he expects the short-term impacts of the end of the USPS partnership to be "significant" and "painful." While he expected that "something would have to give" regarding the partnership, "we did not expect it to be now." B. Riley FBR analyst Zach Cummins lowered his price target for Stamps.com to $130 and said he believes Stamps.com can return to high single-digit growth with adjusted EBITDA margins near 30% in fiscal 2020. Stamps.com should be able to leverage its relationships, integrations, and volumes across to the industry to secure revenue share agreements with the likes of FedEx (FDX), UPS (UPS), or even Amazon.com.
PRICE ACTION: In morning trading, shares of Stamps.com are down 57% to $85.20.
FedEx
-3.82 (-2.10%)
Amazon.com
+5.79 (+0.36%)
Stamps.com
-113.26 (-57.18%)
UPS
-2.44 (-2.18%)