Stamps.com (STMP 85.14, -112.94, -57.02%) is the big headline story this morning as
its stock turns down by more than 55% following the company’s earnings reporting
last night. The Q4 results were good, but the 2019 guidance was well below
market expectations. STMP expects 2019 non-GAAP EPS of just $5.15-6.15 and
revenue of $540-570 mln.
The company’s earnings press release provided little color to explain that downside guidance, deferring conversation about certain impactful “strategic items” to the conference call, at which point STMP dropped a bombshell. STMP went into a long discussion about the state of the shipping industry. The key takeaway from that presentation is that STMP will discontinue its exclusive partnership with USPS and will adopt a multi-carrier strategy. This will impact near-term results, but STMP is convinced that the move to a multi-carrier model is the best strategy moving forward.
Basically, STMP says that it needs to change with the times. You can read our conference call summary on InPlay from last night for fuller details, but the gist of the company’s rationale that the shipping industry is changing rapidly. Consumers are expecting 2-day delivery and same-day delivery for some items, and USPS (the U.S. Post Office) just is not capable of providing this. As a result, STMP is moving away from its exclusive USPS relationship and adopting a multi-carrier strategy that will position it to work with more various partners (UPS, FedEx, DHL, Amazon, etc.).
STMP is feeling the pressure. Incumbents have been getting more aggressive in terms of challenging ecommerce shipping. UPS (UPS) is focusing more on ecommerce and has integrated more with Shopify (SHOP). FedEx (FDX) is also being more aggressive, including through its FedEx One rate, which is being priced aggressively to capture ecommerce volumes. FedEx also has new alliances with Walgreens (WBA) and Walmart (WMT), through which FedEx will enable consumers to pick up packages at FedEx locations housed on-site in Walmart stores – some 500 FedEx locations are anticipated to be added in Walmart sores by May 2020 – and in 9,700+ locations at Walgreens across the country. DHL has also been building up its ecommerce abilities, offering same-day and 2-hour service delivery through its DHL Metro product.
And of course there is Amazon (AMZN), representing nearly 50% all ecommerce, which has built last mile capabilities. AMZN will grow from its 27 planes currently in operation with contracts to have 40 planes by summer 2019. Shipping with Amazon (SWA) is being launched at 10% discounts to FedEx and UPS, and the service has promised to cut out certain surcharges and fees. Also, some say AMZN is underpricing competitors. AMZN's threat should be taken seriously. It will be a major force in the shipping sphere.
STMP has concerns that USPS will become less competitive over time. The many rules/regulations that USPS is subject to do not allow it to change as rapidly as the market demands. Questions of changes to the operations or status of USPS have weighed on STMP’s stock in the past. USPS is hamstrung by requiring pre-funding retiree health benefits; it also supports pensions, health benefits, etc. for 600K retirees. USPS does not have 2-day guarantees, but customers are increasingly demanding this. STMP thus believes that it needs to work with carriers other than the USPS to meet demand and remain competitive.
In sum, it will be very interesting to see how the company’s new carrier model plays out over the coming months and years. This is a big change for STMP, which has worked exclusively with USPS for 20+ years. STMP’s earnings results will take a hit in the near-term. It's not really clear how this all will shake out, and investors are selling the stock en masse this morning. STMP probably does need to make this change, but it's likely going to make for a difficult transition.
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