Deals Shore Up Stamps.com Amid Wild Market
By DARRELL SATZMAN
Shares of Stamps.com have been buoyed by two major announcements, although the Santa Monica-based company continues to lose money.
Earlier this month, the U.S. Postal Service approved a Stamps.com service aimed at simplifying the purchase of postage via the Internet. That was followed closely by a deal with PayPal Inc., a leading Web-based payment service that has a deal to be acquired by online auction giant eBay.
Stamps.com, which worked with the Postal Service for years to develop a system that would meet the government’s security requirements, is the first company to receive approval to sell stamps as opposed to postage over the Internet.
“There’s very strict requirements for the vendors,” said Sue Brennan, a spokeswoman for the Postal Service. “All the vendors were given our security requirements and it was up to them to come up with different models. (NetStamps) is the latest evolution.”
Stamps.com closed at $4.38 on July 24, roughly even over the last three months as the Standard & Poor’s 500 has lost nearly 30 percent of its value.
Even so, the company reported a second-quarter net loss of $700,000, compared with a loss of $100,000 for the like period a year ago. Second quarter revenues were $3.7 million, vs. $5 million for the year earlier.
President and Chief Executive Ken McBride says that the company would probably post a third-quarter loss as well.
“The one thing we haven’t done a great job at is growing the top line, the revenue,” McBride said. “That’s why the focus this year is really on the product. NetStamps is the most important step in our transformation this year.”
After years in development, including a six-month beta test in the first half of 2002, Santa Monica-based Stamps.com received the go-ahead from the Postal Service to introduce its NetStamps service, which allows customers to print out postage that has no expiration date. In the past, postage purchased through Stamps.com, like metered postage, had to be used within 24 hours.
Also considered a boost is Stamps.com’s deal to sell postage on Web sites serviced by PayPal, which last year processed more than $3 billion in Web transactions. EBay has bid $1.5 billion for PayPal in a deal expected to close later this year. Terms of the PayPal deal were not released.
NetStamps’ potential to draw new business customers holds the most promise for growth. “It removes the biggest source of customer complaints and provides a lot more convenience to the user,” said McBride. “You can print (stamps) out and throw them in a drawer and use them whenever you need them.”
With NetStamps, customers print out sheets with regular 37 cent postage stamps or shipping labels with a specific postage. There are two pricing options: $15.99 per month, plus the cost of postage, to print out unlimited stamps; or a $4.49 per month base fee to pay the cost of postage, plus a 10 percent surcharge.
Fewer than 400,000 customers use computer-generated postage, according to the Postal Service, versus more than 1.5 million using postage meters.
Founded in 1998, Stamps.com was burning through tens of millions of dollars each quarter and sinking fast last year before new management slashed the workforce by more than 80 percent, to about 70 employees today.
According to its second-quarter filing, the company had $154.7 million in cash on hand, vs. $190 million at the end of the first quarter.
In April, Stamps.com’s board approved a buyback plan to repurchase up to $20 million of the company’s stock.
“If you look at the cash they have, at say $4 a share, you’re only paying about 25 cents for the business,” said Mike Crawford, an analyst with B. Riley & Co. “They’ve basically been trading at the level of cash they have.”