Stamps.com Sticking to Basics To Reinvigorate Core Business

0

After an infamous foray into personalized postage that wound up being suspended by the U.S. Postal Service, Stamps.com has refocused its business, and fourth-quarter results indicate that the Santa Monica-based company is back on track.


The new focus is actually the old one providing plain-vanilla online postage services to small- and medium-sized business customers.


For the October-December period, Stamps.com reported net income of $1.5 million, compared with a loss of $2.7 million for the like period a year earlier. Revenues surged 83 percent, to $11.7 million.


Most of that activity was driven by Stamps.com’s 358,000 subscribers, mostly small- and medium-sized companies.


“One of the misconceptions about this business is that people think it’s just consumers printing stamps at home,” said George Sutton, Internet analyst at Craig-Hallum Capital Group, one of two analysts covering the stock. “But in reality, this is a business-to-business transaction.”


Over the past year, Stamps.com has phased out a lower-cost subscription plan that amounted to about $5 per month in favor if its $15.99 per month subscription suite. The company signed up 64,000 new customers last year, and started offering shipping labels, hidden postage and integrated package insurance.


This year, it will reach out to even larger companies with new offerings, said Chief Financial Officer Kyle Huebner. In doing so, Stamps.com will be going after metered mail giant Pitney Bowes Inc.


The two settled patent infringement litigation in December 2003, entering into a five-year cross-licensing agreement. Under the settlement, Stamps.com’s patent licenses are limited to non-traditional metering applications such as Internet postage, while Pitney Bowes’ licenses may be used across the entire range of metering applications.


So far, Pitney Bowes has not ventured far into the online world, leaving Stamps.com with “a fairly benign competitive market, which is unusual in the online world,” Sutton said.


If Stamps.com wants to take away Pitney Bowes’ customers, though, it has to lure them into the “non-traditional” arena. “Pitney Bowes has never been aggressive in their online business,” Sutton said. “It wants to protect its offline business more so than grow its online business.”


Meanwhile, the Postal Service has said it is still in the “evaluation phase” of Stamps.com’s personalized PhotoStamps program and has not indicated when it will make a final decision. (Avery Dennison Corp. has a similar program, although the photos are placed next to U.S. stamps rather than becoming stamps themselves.)


The trial program was placed in limbo after images of Unabomber Ted Kaczynski, Lee Harvey Oswald and other notorious figures slipped through screeners and wound up on official U.S. Postal Service stamps.


PhotoStamps produced 51,000 orders for personalized stamps and $2.3 million in revenues, Huebner said. Most of that impact was felt in the third quarter.


The online stamp market is just a fraction of the $65 billion postage market. The real challenge for Stamps.com is on the marketing side, according to Sutton. “We have consistently looked at this company as a very intriguing model in the early stages of a ramp-up in the business,” he said, adding that acquisition is a possibility, although it “has never been a part of our investment thesis.”

Hilary Potkewitz



Accounting Error


Countrywide Financial Corp. said it overstated its 2004 results by 20 cents a share because it improperly recognized securities sales in quarterly periods when the sales were made afterward.


The Calabasas-based mortgage lender said it will reduce its previously reported 2004 earnings per share to $3.63 (diluted) from $3.83.


The 20 cents per share will be shifted into the first quarter of 2005. As a result, Countrywide increased its previously announced guidance for 2005 to a range of $3.45 to $4.45 per diluted share, from a range of $3.25 to $4.25.


Countrywide will not need to restate its 2004 results because it has not yet filed its annual 10-K report for the year.


Countrywide said in a press release that the error was flagged by its auditor, KPMG LLP, on Feb. 18. The mortgage-backed securities contained “embedded derivatives” used to hedge against extreme changes in short-term rates and to enhance the securities’ credit rating.


The revision will require the company to report a “material weakness in internal controls over financial reporting” in its 10-K, Countrywide said.

Anthony Palazzo



Title Deal


Title insurer First American Corp. has bought privately held United General Financial Services Inc., the nation’s sixth-largest title insurer, for an undisclosed price.


Denver-based United General, which had sales of $208 million last year, had been acquired in a management buyout in 1995 by its president and chief executive, John P. Dwyer, and other key management.


Santa Ana-based First American is the No. 2 title insurer behind Fidelity National Financial Inc., which moved from Irvine to Florida two years ago.


In January, a jury hit First American with $43.2 million in damages in a lawsuit with rival Fidelity National Financial. The lawsuit, filed by Fidelity’s Chicago Title Insurance Corp., charged First American with violating a non-competition agreement and “intentional interference with contract.”


First American said it would refund about $24 million to customers after state insurance investigators in Colorado claimed it gave kickbacks to homebuilders, lenders and real estate agents. First American said it would no longer pay for referrals.


California Insurance Commissioner John Garamendi said he was investigating the industry on the kickback issue, which has been common among all title insurers.

Orange County Business Journal



Chip Accord


The spat between Taiwan Semiconductor Manufacturing Corp. and China’s Semiconductor Manufacturing International Corp. with Irvine-based Broadcom Corp. in the middle finally has reached an end.


The two contract chipmakers reached a settlement in their nearly yearlong patent dispute. According to the deal, Semiconductor Manufacturing will pay Taiwan Semiconductor $175 million in the next six years.


Taiwan Semiconductor said it would dismiss all legal complaints against Semiconductor Manufacturing in the U.S. and Taiwan. Both companies said they would license each other’s patents through 2010.


The suit centers on designs both companies are using to make chips under contract from Broadcom. Chip designers such as Broadcom that don’t have their own plants almost always contract with more than one factory so they can meet big orders quickly.

Orange County Business Journal

No posts to display