Stamps.com (STMP, Financial) is a company that provides Internet-based mailing and shipping services. The California-based company’s share value has risen phenomenally by 87% in the past three years and the company’s postage solutions section has been doing really well in the past few quarters. The company recently posted its third quarter numbers of the fiscal year on November 5 which were impressive from the investment standpoint. Also, the company has acquired a few companies this year to improve its business further in the years to come. Let’s find out why it could be said that Stamps.com is on a great growth journey down the years.
Glancing at the third quarter numbers
Revenue for the third quarter stood at $35.8 million exhibiting year-over-year growth of 21%. As the mode of business is mostly online for Stamps.com, the customer base becomes a very important tool to assess its popularity and fortunately this metric is pretty healthy for Stamps.com as it has acquired 67,000 small business customers during the third quarter. Notably the average subscriber revenue per paid customer also increased by 12% to $23.56 during the quarter.
As the market remained seasonally down during the quarter, the company invested in promotional sales linked to customer acquisition which led to weak gross margins that stood at 80.2%, compared to 81.2% in the third quarter of 2013. But while the margins took a toll, the impact of the promotional offers was noticed in the growth of the bottom line for the company.
Non-GAAP operating income was $11.7 million and non-GAAP net income was $11.5 million, or $0.71 a share, compared to $10.1 million each as operating income and net income a year ago that had translated to earnings of $0.62 a share.
The outlook for the remaining year also is highly optimistic, as the company has projected 2014 revenue to be in the range of $135 to $150 million, compared to the previous guidance of $130-$140 million.
Such impressive numbers posted during the third quarter testify to the exemplary growth Stamps.com has witnessed down the years, something that should probably continue post the success achieved through the acquisitions in place.
Driving ecommerce further ahead
Stamps.com’s chairman and CEO, Ken McBride, stated during the earnings call, “The acquisition of ShipWorks represents another strategic investment in our high volume and ecommerce shipping business. … Ecommerce-driven package shipping is a very attractive segment within the mailing and shipping space, and this acquisition in combination with our previous ShipStation acquisition further leverages our ability to accelerate our growth in this area. We were also very pleased with our record third quarter financial results where we saw accelerated growth in our core mailing and shipping business including positive contributions from both our ShipStation and ShipWorks subsidiaries. We remain very excited about the opportunities we see in all of our business areas.”
Indeed, the latest acquisition of ShipWorks offers Stamps.com monthly subscription based shipping software which makes business easier for the online stamps seller. ShipWorks solutions integrate with over 50 popular online sales and marketplace systems including eBay (EBAY, Financial) PayPal, Amazon (AMZN, Financial) and Yahoo! (YHOO, Financial). Hence, this recent acquisition adds several value-adding features such as the ability to send email notifications to buyers, updating online order status and automated order processing.
Also, the acquisition of ShipStation completed in the second quarter of the fiscal year, has already started to impact the numbers that is well understood on studying the third quarter in minute detail. However, both these acquistions have been done taking two different approaches. While ShipStation is completed web based, ShipWorks is a windows client-based solution. Ultimately both products are seeing success in the e-commerce domain and the company expects them to compliment each other in the days ahead.
Macro environmental conditions remain optimistic
Stamps.com is currently operating in an industry which is growing massively and this has had a positive impact on the stock that’s constantly on the upsurge. Also, as of now, the market is expected to benefit further from the holiday season as more customers might be pouring in to buy stamps to mail their commodities throughout the U.S.
Moreover, the economic revival is highly prominent in the U.S. where the economy really grew at a faster rate than projected. In the third quarter, the U.S. economy expanded at an annualized rate of 3.9% between July and September, up from 3.5% estimated by the Bureau of Economic Analysis. Due to the U.S. economy pulling up, consumer spending has also substantially increased in the past quarter and thus ecommerce activity is now predicted to grow at a rate of 33% and 31.7% in 2014 and 2015, respectively in North America.
Such positive vibes in the market acts as a sure boost to Stamps.com’s online business activities and might lead to continued growth in both top and bottom line of the company.
Concluding note
Stamps.com is truly on a fast track growth mode with the U.S. economic revival acting as a clear positive for invigorating the sales of the company through the ecommerce route. With the industry conditions improving and the company expanding through acquisitions, analysts are expecting it to yield an earnings growth of 12% in the coming fiscal year. Investors can remain confident on their investments and could hold the stock in the long term.
