Stamps.com (STMP) is trading higher today after reporting strong
Q2 results and raising guidance last night. Stamps.com is a provider of
Internet-based postage services allowing customers to buy and print postage on
their computer without having to visit the post office. The company charges a
monthly subscription fee plus postage cost. Its platform is also integrated in
key partner programs like MS Office and AMZN's Marketplace.
While the company's historical focus has been selling to individuals and small businesses, in recent years, STMP has focused intently on the more lucrative high-volume shippers (warehouses, fulfillment houses, and large volume retailers) and enterprise markets, which are more attractive in terms of margins, ARPU, and churn rates. To achieve this, STMP has been active on the M&A front. STMP made a large acquisition in late 2015 when it bought Endicia from Newell Brands (NWL). Endicia is a major provider of high volume shipping technologies with seamless access to USPS.
STMP now has a full and diverse suite of five brands: Endicia, ShipStation, ShipWorks, ShippingEasy, Stamps.com and MetaPack:
- Endicia is a brand for high volume shipping technologies for US Postal Service shipping. It helps businesses run their shipping operations more smoothly by providing seamless access to USPS shipping services through integrations with partner applications. ShipStation is a web-based platform that helps e-commerce retailers import, organize, process, package, and ship their orders quickly and easily from any web browser.
- ShipStation features the most integrations of any e-commerce web-based platform with more than 150 shopping carts, marketplaces etc. Integration partners include eBay, PayPal, Amazon, Etsy, Square, Shopify, BigCommerce and carriers such as USPS, UPS, FedEx and DHL. ShipStation has sophisticated automation features such as automated order importing, custom hierarchical rules, product profiles etc. that enable customers to complete their orders.
- ShipWorks helps high volume shippers organize, process, fulfill, and ship their orders quickly from any standard PC. With integrations to more than 90 shopping carts, ShipWorks has the most integrations of any high-volume client shipping platform. ShipWorks has sophisticated automation features such as a custom rules engine, automated order importing etc.
- ShippingEasy is a software program that allows online retailers and e-commerce merchants to process, fulfill and ship their orders quickly and easily. ShippingEasy integrates with major marketplaces, shopping carts etc. to allow order fulfillment and tracking data to populate in real time across all systems. The ShippingEasy software downloads orders from selling channels and automatically maps custom shipping preferences, rates and delivery options across all supported carriers.
- MetaPack: In July 2018, STMP said it will acquire MetaPack, a UK-based company. Their core software is an application programming interface, or API. MetaPack's customers integrate their internal software to the single MetaPack API once, and then the customer is able to use any of the 450+ carriers in their operations. Unlike the US, international markets, and especially Europe, require a much broader carrier footprint. In addition to their core multi-carrier API, MetaPack also offers sophisticated software, such as a carrier optimization engine. The deal helps STMP expand internationally and accelerate MetaPack's growth in the US, which is small currently.
Turning to the Q2 results, non-GAAP EPS rose 32% year/year to
$2.75, which was well above market expectations. Revenue rose 20.2% year/year
to $139.6 mln, which was modestly above expectations. It was not just the Q2
beat, STMP also guided nicely for 2018: Non-GAAP EPS guidance was increased to
$10.15-11.15 from prior guidance of $9.60-10.60. STMP also reaffirmed FY18
revenue guidance of $530-560 mln.
Mailing and Shipping revenue was $134.4 mln, up 20% year/year. Growth was driven by growth in ARPU, which exceeded $60 for the first time in the company's history. Its total paid customer metric was 737,000. Paid customers were flat year/year, but this is consistent with STMP's strategic shift to focus more on high volume shippers, which are numerically fewer in number, but where each customer has a much higher lifetime value. With this shift in focus, revenue has been more driven by growth in ARPU than by paid customers. Shipping customers generally pay higher subscription fees than small business mailers.
In sum, this was another impressive quarter for Stamps.com. STMP has now reported three big upside quarters in a row after the stock sold off following Q3 results in early November. It shows that the company's decision to focus more on the lucrative high-volume shipping market is paying off. The stock tends to be volatile around earnings, but this was one of the good quarters.