Stamps.com Inc. (NASDAQ:STMP) is a dotcom-bubble company which has recently shot up impressively over the past five years, appreciating at breakneck speed only seen since the company went public in 1999. At the time (adjusted for splits), the company’s stock price shot up to the $170 level in 1999 before plummeting to the $5 level in 2000.
Today, the company’s stock price is again shooting higher, with the company’s equity valuation increasing more than four-fold over the past five years. Investors have climbed in with the expectation that earnings will continue to climb and the company’s business model with continue to produce stellar results.
I’m going to discuss one of the major risks which has become apparent involving the company’s business model relating to its Postage Re-seller Program and relationship with USPS and other re-sellers.
In a report released by the Capitol Forum in December 2016, the re-seller program is described in detail, with a history given as to how Stamps.com was able to partially fill the domestic shipping void left by DHL. This re-seller program allowed USPS to enter into Negotiated Service Agreements (NSAs) with individual companies, allowing for Stamps.com to benefit from relationships between USPS and other re-sellers such as Intuiship, earning a spread based on volume discounts and the ability of Stamps.com to drive customers to use the USPS platform.
Stamps.com has done very well with this model, with earnings-per-share now at $5.25 per share, while USPS reported a loss from operations last year of approximately $5.4 billion. The profit Stamps.com is able to bring in is largely a function of the ongoing structure of the re-seller program and Negotiated Service Agreements, agreements which congress may be forced to look at given the stark contrast in profitability between USPS and the companies that deal with USPS.
With the recent U.S. budget proposal pending, potential changes to such agreements are a huge risk for Stamps.com and other companies associated with this program.
