05/26/2017

Stamps.com: Focus Intrinsic Value Buy Idea

Overview:

Stamps.com Inc. is a provider of Internet-based mailing and shipping solutions. Under the Stamps.com and Endicia branded solutions, the Company’s customers use its service to mail and ship a range of mail pieces, including postcards, envelopes, flats and packages, using a variety of United States Postal Service (USPS) mail classes, including First Class Mail, Priority Mail, Priority Mail Express, Media Mail, and Parcel Select, among others. Its customers include individuals, small businesses, home offices, medium-size businesses and large enterprises, and within these categories, the Company targets both mailers and shippers. In addition, the Company offers multi-carrier shipping solutions under the brand names ShipStation, ShipWorks and ShippingEasy. The Company’s products and services include Mailing and Shipping Business and Customized Postage. There are a few reasons why we like Stamps.com as a company:

Core USPS Business – STMP acts as an intermediary between individuals/businesses and the US postal system. Through a subscription service and other offers, STMP provides all-in-one postal solutions for home and office. The company is able to provide discount shipping, easy print and ship options, and superior customer service. STMP’s core business saves companies time, money and is easily scalable.

Partner Relationship with E-commerce Businesses – Stamps.com and its various businesses act as partners to many ecommerce players. The firm derives business from Amazon, Ebay, Etsy and many other online retailers. By offering a suite of shipping solutions, STMP is now an integral part of many online businesses.

Catalysts:

Multi-Carrier Expansion Over the past few years, STMP has purchased numerous businesses designed to increase the firm’s exposure outside of traditional government-run shipping. Three platforms, ShipStation, ShipWorks and ShippingEasy, were purchased between 2014-2016. These platforms give STMP exposure to alternative carriers such as UPS, FedEx, DHL and others. A multicarrier, all-in-one platform is important for cost and execution for many small businesses. For instance, if a customer needs an item shipped the next day, then an alternative carrier may be used (but cost more). However, if an item can be shipped any time in the next week or two, USPS services can offer a low price method. With access to multiple carriers, Stamps.com gives firms the ability to outsource complex shipping needs in a convenient manner.

Upward Trend of E-Commerce STMP derives a portion of its revenue from many e-commerce businesses. For example, Stamps.com has an integration partnership with Amazon where STMP domestic and international shipping labels are available to Amazon.com Marketplace users. As volumes from online retailers grow, Stamps.com should benefit. In particular, 16Q4 could be an impressive milestone. In the 4th quarter of 2015, Amazon saw sales close to $36B, up roughly $10B from the quarter before. This year, Amazon is forecasted to have sales near $45B for Q4. Similar trends can be seen across other firms in the online retail space. STMP should benefit from the continued rise in E-Commerce sales as the firm essentially acts as an intermediary between the online business and the consumer.

Overall, we feel that STMP has a solid core business with the USPS infrastructure, and has made intelligent acquisitions in recent years to gain exposure to alternative carriers. With the continuous rise of e-commerce firms, and expected record online sales for the final quarter of 2016, STMP should benefit over the next few months.

About John Holt 4 Articles

Research Analyst at The Applied Finance Group

Focus areas: Equity Analysis, Portfolio Consulting, Quantitative Research.
Joined AFG in 2015

About John Holt 4 Articles

Research Analyst at The Applied Finance Group

Focus areas: Equity Analysis, Portfolio Consulting, Quantitative Research.
Joined AFG in 2015