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Stamps.com after Nixing's exclusive USPS Deal – The Motley Fool



Stamps.com (NASDAQ: STMP) announced solid fourth quarter results for 2018 on Thursday, beating profits, as the company's strategic focus on its highest customers continues to play. However, the online shipping and shipping solution manager also surprised investors with weak forward guidance, driven by the decision to terminate their exclusive partnership with the US postal service.

With stocks down almost 58% on Friday in response, let's dig deeper to see both how Stamps.com ended in 2018 and what investors should expect in the coming year.

  Hand puts a stamp on a white cover

Image source: Getty Images.

Stamps.com results: The Red Numbers

Metric

Q4 2018

Q4 2017

[19659000] Annual profit growth

Revenue

$ 170.2 million

$ 132.5 million

29%

GAAP net income

$ 42.7 million

$ 40.2 million

6%

19659015] GAAP net income per diluted share

$ 2.30

$ 2.15

7%

Data source: Stamps.com. GAAP = accepted accounting principles.

What happened to Stamps.com in the quarter?

  • Revenue and freight segments increased 29% to $ 165.4 million and custom port revenues rose 23% to $ 4.8 million.
  • Adjusted for items such as equity-based compensation and cost of acquisition, net income (non-GAAP), decreased by 20% during the year to $ 3.73 per share – over $ 2.90 per share most investors had expected.
  • Adjusted EBITDA increased by 11% to $ 71.3 million.
  • Paid customers were flat compared to last year's 736,000, which is in line with Stamps.com's strategic focus on providing fewer high-life value customers. As far as it went, average monthly revenue per paid customer grew from 29% to $ 74.93.
  • Average monthly receipt was 2.9%, somewhat weak from 3% in last year's fourth quarter.
  • Stamps.com repurchased 531,000 shares for $ 88.5 million in the quarter.

What the management had to say

Stamps.com Chairman and CEO Ken McBride stated:

We are pleased with our fourth quarter and fiscal 2018 financial performance. We achieved strong financial results driven by exceptional performance in our shipping business, and we completed our strategic acquisition of MetaPack, which has placed Stamps.com as the leading global e-commerce vendor software company. We are well positioned to compete globally with a focus on running long-term value for our customers, partners and shareholders.

During the subsequent conference call, McBride pulled this cotton shell:

When our customers offered services such as Shipping with Amazon, FedEx One Rate, UPS New Products, Regional Carriers, Uber Shipping, Store Shipping and Everything else, we must Bring these solutions to our customers so they can always choose the best option for their business. USPS is working hard to compete in the e-commerce sector. But … they have many constituents, and they have many problems dealing with that the more boring private carriers do not. As everyone knows, we have been in discussions with USPS about renewing our long-term stock income agreement that we use to operate our shipping business. We have proposed our USPS Renewal Terms. One of our non-approved items is that … we will no longer be exclusive to USPS. And it is non-negative. USPS has not agreed to accept these terms or other terms of our partnership proposal. So at this point, we have decided to cancel our freight partnership with USPS so we can fully embrace partnerships with other carriers that we believe will be well positioned to win in the shipping business over the next five years.

In brief, given the direction of the broader shipping industry and a plethora of superior options for customers – as well as USPS's refusal to accept Stamps.com terms of renewal – Stamps.com will no longer cooperate with USPS exclusively. [19659024] Looking Forward

Therefore, McBride warned that Stamps.com will experience "some short-term pain … over the next few years" as it sacrifices its shipping revenue share with USPS.

Meanwhile, stamps .com expects accounting 2019 revenue in the year between $ 540 million and $ 570 million – down 5.4% from 2018 in midpoint and well below 16% growth were most analysts modeling. It would translate into adjusted net earnings per share of $ 5.15 to $ 6.15 – down from $ 11.78 per share in 2018, and just over half of $ 10.79 per share Wall Street expected.

To be fair, this can be just the right move to ensure that Stamps.com can survive and prosper in the long term in our changing shipping industry. But given the financial pressure it must endure then, it is not surprising to see the shares fall in response.

Steve Symington has no position in any of the aforementioned shares. Motley Fool owns shares and recommends Stamps.com. Motley Fool has an information policy.


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