Stamps.com (STMP) is trading up sharply today (+30%) after reporting very strong Q2 results and raising guidance last night. In case you're not familiar, 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: ShipStation, ShipWorks, ShippingEasy, Endicia and Stamps.com.
Turning to the Q2 results, non-GAAP EPS rose 62% YoY to $2.08, which was well above market expectations. Revenue rose 38.2% year/year to $116.1 mln, which also was well above expectations. It was not just the Q2 beat, STMP also raised guidance for 2017 as they now expect non-GAAP EPS of $7.50-8.50 and revenue of $435-460 mln vs prior EPS guidance of $7.00-8.00 and revenue guidance of $405-430 mln.
Mailing and Shipping revenue in Q2 was $111.8 mln, up 37% YoY. Growth in that business was driven by both growth in paid customers and growth in the average revenue per unit or ARPU. YoY growth in Q2 accelerated relative to Q1 which grew 30% YoY. Paid customer growth was the result of strong customer acquisition this quarter, as well as lower churn. STMP has seen a nice acceleration in YoY growth in paid customers, with Q4 last year up 8%, Q1 of this year up 11% and now Q2 of this year up 14%.
Average monthly churn rate during Q2 was 2.8%, which was down from 3.2% in the prior year period. Reduction in churn was primarily a result of a continued focus on acquiring shipping customers as they tend to have lower churn rates relative to traditional small business office users. ARPU was $50.51 in Q2, up 20% YoY as STMP benefited from continued growth in its shipping business because those customers pay higher subscription fees, and STMP collects additional partnership revenue in that area.
An initiative for 2017 has been to invest heavily in sales and marketing with a focus on acquiring shipping customers, particular e-commerce shippers. STMP continues to see strong return on investment and STMP plans to continue to increase marketing spend in 2017 relative to 2016. STMP is upping its investment in its direct sales team, direct mail, traditional media, radio, television, and search engine marketing.
In sum, this was another impressive quarter for Stamps.com, it follows huge beats in Q4 and Q1 as well. It shows that the company's decision to focus more on the lucrative high-volume shipping market is paying off. The stock hit a rough patch in the March to May period but has rebounded nicely since then, up more than 90% since early May.