Stamps.com (STMP) dropped its exclusive deal with the United States Postal Service (USPS) and was not able to make a non-exclusive one. That wasn't expected by the market, even though the company had been pivoting its model to rely on companies that ship using a variety of carriers. And while the stock has plunged, Stamps.com does have a plan -- albeit one that faces a lot of competitors.
A full transcript follows the video.
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This video was recorded on Feb. 26, 2019.
Shannon Jones: Let's dive right in. We've got a lot to cover. Let's start with the bigger story, and that would be with stamps.com. Shares of stamps.com, ticker STMP, dropped as much as 58% on news late last week, wiping out nearly $2 billion in market cap. Dan, for such a steady-eddy company like stamps.com, which for our listeners has been the leading provider of postage solutions for regular Joes like you and I and also business customers, what in the world happened when shares can drop 58%?
Dan Kline: Well, basically, they're no longer going to be able to sell stamps. We've thrown around a lot of jokes about this. This would be like if flowers.com was just in the gym business. Essentially. they're losing their exclusive deal with the U.S. Postal Service. This didn't happen from the Postal Service side. stamps.com decided it couldn't afford to only be with one dwindling player. While it had other solutions, its deal with the USPS was very restrictive in what it was allowed to do with other players. So, they went to the Postal Service and they said, "How about a non-exclusive deal? Can we do things different ways?" And they weren't able to make a deal. They were in the midst of a business pivot anyway. This isn't a shocking, "Hey, renewing our deal? No! Oh, no!" They knew this was coming. But, it happened a little bit harsher than they expected and maybe with a little more finality than expected, and boy, did shares tumble.
Jones: Yeah, 58%. Basically, non-exclusive partners, sounds a lot to me like a reality show at this point. They're friends but will not be seeing each other exclusively. Dan, it sounds like this was not necessarily precipitated by any one thing or even by bad quarterly performance. Am I right?
Kline: Their quarterly numbers were good. Because of this change, they cut their guidance in half. The problem with it is, when you cut your guidance that much, it's clearly a guess, not a guidance. They're largely changing their business model. They used to focus on selling postage, which was getting you or I or companies to buy postage, buy their shipping software, and most of that volume moved through the U.S. Postal Service. Now, they're moving to focus on companies that do shipping and offering whatever the best solution is for that market. You might be working with 300 national companies, the five or six major ones, but then companies that just do very limited things in very limited areas or very specific carriers for certain types of products. They're going to try to match you with the best service. They're not alone in this space. Shopify would be a big example of a platform that does some of that.
Everything going forward for this company is uncertain, but the reality is, they could have kept their deal with the Postal Service, and that would have been ignoring that the Postal Service is a decaying business that probably has to raise prices, that's not financially solid. When you see Amazon pulling away from these people and taking on shipping customers on its own, you can't just let that go just so you can say, "Yeah, my numbers will be this next quarter," if you know that three years from now, your numbers will be terrible if you stick with that business model.
Jones: Exactly. Speaking of numbers, just to give our listeners a quick rundown, Q4 revenue was actually up 29% for this company. Full-year was up 24%. When you start digging into some of the actual platform metrics, there was really a lot to like about this company. This was a stock that was a Fool favorite for a lot of reasons, one of which was their churn rate. Looking at the last quarter, their churn rate -- which basically is the percentage of subscribers who discontinue their subscriptions -- declined to 2.9%, a good sign. This is an important metric when you're looking at any company with a subscription-based model. For context, since 2010, churn rates have actually been on the decline. In 2010, it was 3.9%. What this has been telling us is that more customers have been sticking with their subscriptions, which has been good for them.
Additionally, a couple of other metrics that everybody has been liking. If you look back since 2013, compound annual growth rate for new customers has been 10%. Average revenue per user -- this is another important platform metric -- has grown by 19% over that same time frame. This was actually one of those situations that on the surface looked really good.
Kline: Let me jump in there. When you talk about the average revenue per user, which over a lifetime has gone up 29%, that is the only piece of news long-term. They've been working for the past year to get a different type of customer, to get a corporate customer that's doing shipping. That customer is working at higher volume. They're going to be a higher-revenue-producing company. So, if you want to look at anything from this report -- honestly, the metrics of last year don't make sense anymore because they're largely not going to be in that business, or at least not on an exclusive basis with the best terms. It's not going to be the revenue driver it was. The fact that they've been able to use their shipping platform and get those mid-level companies suggests that this is a well-run business that has a chance of turning this corner as it moves into an entirely different business model.
Click here for the latest earnings call transcript for Stamps.com.