February 06, 2016 - 2:37pm EST by
2016 2017
Price: 88.00 EPS 0 0
Shares Out. (in M): 19 P/E 30 0
Market Cap (in $M): 1,600 P/FCF 40 0
Net Debt (in $M): 40 EBIT 65 0
TEV ($): 1,640 TEV/EBIT 25 0
Borrow Cost: General Collateral

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  • trades like an open-ended growth story but it’s a low-quality product in a declining end market

    • US total postal volumes have been declining at 5-10% annually and will likely continue to decline at a similar rate

    • has many competitors include Pitney Bowes

    • While Stamps sells postage and other products, the large majority of its revenues comes from the $15-25+ monthly subscription fees. This is primarily a subscription business

    • Huge number of negative reviews online (

    • Many customers complain of scam marketing tactics and extremely difficult cancellations policies

  • Rapidly slowing organic growth masked by recent M&A

    • Customer growth, total paid customers, postage printed, and core revenues were all on the decline until Stamps acquired two businesses – Shipstation and Shipworks – in 2H14

    • STMP has avoided quantifying the revenue contribution from acquisitions on earnings calls and in its filings

    • Momentum slowed again in 3Q15 as the company began lapping these acquisitions. STMP has since closed another deal, Endicia, in November 15

    • Without these acquisitions, organic revenue at Stamps would likely be anemic to negative

  • Sub base dynamics negative -- high churn & CPGA

    • Annual churn has consistently been 35-45%. The company’s efforts at reducing churn have not been successful

    • The company calculates a 3Q15 cost per gross addition (CPGA) of $106, down from $122 in 2014

    • However, an all-in CPGA (calculated on total S&M costs) is $170 and has not showed improvement

  • Stamps has paid fairly hefty multiples to consolidate smaller competitors

    • Acquired Shipstation in Jun14

      • Paid $50mm + 768,900 STMP shares tied to earn out

      • ~6x run-rate revenues

      • ~30x run-rate OP

    • Acquired Shipworks in Oct 14

      • Paid $22mm

    • Acquired Enidicia in Nov15

      • Paid $215mm cash

      • $60mm in FY14 revenues

      • Stamps hinted Endicia probably has around 14% PF operating margins

      • >3x revenues

      • >20x PF OP

    • $287mm in acquisitions have increased STMP market cap by $1bn

  • Corp governance is a question mark

    • 4 person board comprised of:

      • Current CEO

      • One VC

      • One outside investor, Lloyd Miller

        • Sold $11mm of stock in 2H15

      • One former CEO

  • Valuation is very high. Trades like an open-ended internet company but is reliant on acquisitions and sells into a declining end market

    • 5.5x consensus NTM revenues

    • 16x consensus NTM EBITDA

    • 22x consensus NTM PF EPS

    • EBITDA and PF EPS include a large number of adjustments. For instance, 9MTH15 EBITDA was $52mm vs. GAAP operating loss of $4mm. Some of the adjustments -- like the $10mm litigation expense -- may be truly one-time in nature but others such as corporate development and contingent consideration expenses seem to be a feature of the business strategy
    • LTM FCF $45mm. Add 10mm of FCF for Endicia (assume no capex and/or some cost cutting). That would put STMP at 32x EV/LTM FCF




  • Endicia acquisition will boost numbers for next year

    • Adds >$60mm in revenue

    • Adds >$10mm in EBITDA

  • The company typically sets a low bar for guidance and should be able to achieve it

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


By this time next year, Stamps will be lapping its deal with Endicia and organic growth will become clear.

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