Los Angeles Business Journal

Economy May Slow Stamps.com’s Growth

By Deborah Crowe Thursday, July 26, 2012

Stamps.com shares sank 15 percent on Thursday after the online postal service reported a better-than-expected second quarter but warned that economic headwinds may push down growth.

The Los Angeles company reported 4 percent higher net income of $5.9 million, (34 cents a share) on 6 percent revenue growth of $28.3 million. Analysts surveyed by Capital IQ on average expected profit of 37 cents a share on revenue of less than $28.1 million.

Shares closed down $3.59, or 15 percent, to $20.65 on the Nasdaq, making the stock one of the biggest decliners Thursday on the LABJ Stock Index. While the company provided full-year guidance that was in-line with expectations, investors likely were concerned with the company’s customer churn rate, especially among its core small and medium business segments.

The economy remains challenging and “continues to affect our small business customer acquisition,” said Chief Executive Ken McBride in a conference call with analysts. He did note longer-term trends were promising.

George Sutton at Craig-Hallum Capital Group in Minneapolis said Stamps.com currently loses about 3.7 percent of its now 483,000 registered customers to churn each quarter, which he said makes the company’s subscription-based model harder to grow at historic rates. Even so, the company is the market leader in its segment and posted impressive 53 percent growth in postage printed, an indicator of how much customers are using the service.

But Sutton warned that the U.S. Postal Service next month may default on its pension obligations for the first time in its history, which could lead to further service cuts that drive customers to other modes of delivering letters and packages.

Stamps.com “is reliant on the U.S. Postal Service,” said Sutton, who maintains a “buy” recommendation on shares but cut the 12-month price target from $45 to $35.