Stamps.com (STMP) is trading up nicely today (+13%) after reporting very strong Q4 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: Endicia, ShipStation, ShipWorks, ShippingEasy and Stamps.com:
- 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.
Turning to the Q4 results, non-GAAP EPS rose 71% YoY to $4.68, which was well above market expectations. In fairness, some of this was from the recent tax reform legislation, but it was a sizeable beat nonetheless. Revenue rose 25.1% year/year to $132.5 mln, which also was well above expectations. It was not just the Q4 beat, STMP also guided nicely for 2018: they expect non-GAAP EPS of $8.80-9.80 and revenue of $530-560 mln, both of which are above market expectations.
Mailing and Shipping revenue was $128.5 mln in Q4, up 26% YoY. Growth was driven by both growth in paid customers and growth in ARPU (average revenue per paid customer). ARPU was $58.28 in Q4, up 16% YoY. Its average monthly churn rate was 3.0%, up slightly vs the 2.9% in 4Q16, but within the normal range. Of note, STMP's churn has exhibited a nice long-term downward trend and continues to benefit from a focus on shipping customers who tend to have lower churn rates compared to traditional small business customers.
On the call, STMP made the point that its system has significant scalability. For example, during the peak period over the holidays in Q4 this year, STMP processed over 14 million packages and mail pieces in a single day. STMP estimates that more than one-third of all US Priority Mail packages and more than one-half of all First Class Mail packages in the US are processed through STMP systems.
In sum, this was an impressive quarter for Stamps.com. It was a nice rebound 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.