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Monday, May 29, 2023

Tech Talk—Sitting on a Pile of Cash, Stamps.com Sticks to Business

A quick glimpse at Stamps.com, the Santa Monica-based provider of Internet mailing and shipping services, is downright frightening, but quick glimpses can be misleading.

The company axed 150 workers last month, just a few months after cutting 240 employees and back-to-back resignations of CEOs John Payne and Loren Smith

Maybe the CEOs were scared off by the mounting losses. Stamps.com reported a net loss of $68.4 million ($1.41 per share) for the fourth quarter ended Dec. 31, much worse than the net loss of $36.9 million (86 cents per share) for the like year-earlier quarter.

Revenues, while growing rapidly, remain a small fraction of net losses. The company reported revenues of $5.3 million for the fourth quarter, compared to $2 million for the like year-earlier quarter.

The stock has been on a steady slide from its 52-week high of $35 a share last March. As of last week it was hovering between $2 and $3 a share.

A closer look, however, reveals something else: a pot of cash. The company has almost $250 million of it on hand.

“I think the stock is a ‘buy,'” said B. Riley & Co. analyst Michael Crawford. “I like that they have all that cash.”

Crawford points to Stamps.com’s new management style as promising.

“Rationality has crept into the business model,” he said. “Their old business model was about taking over the world and growing as fast as possible. They’ve brought their infrastructure down to a stage that matches the stage they are in the business, which is just beyond a startup.”

As a result of those cuts, Stamps.com will lower its cash burn rate substantially in 2001, Crawford said.

Stamps.com is projecting profitability by 2002. For 2001, it is projecting revenues of $23 million, which would be a 60 percent increase from last year. The company also said it would slash its marketing budget to about $15 million, from $75 million last year. Other savings would come from the staff cuts, which would save an estimated $25 million annually.

Stamps.com is also owed $6 million by former CEO Payne, according to a filing with the SEC. Payne borrowed money against his holdings of company stock and now has to pay it back. Stamps.com has entered a loan repayment agreement with Payne and Citigroup Inc.’s Salomon Smith Barney, where he maintained a brokerage account.

In February 2000, Payne borrowed $6 million against his 1.5 million shares to purchase 187,000 more company shares. Then, Stamps.com stock was trading in the $30-a-share range. Payne, who resigned as CEO last October, has until the end of June to repay the company. Payne is now CEO of Switzerland-based technology company Day Corp.

B2B Site Tunes Out

A local B2B player hatched from an AOL Time Warner unit announced last week that it has received $15 million from investors. Burbank-based B3 Corp., a unit of AOL Time Warner’s Warner Music Group, took in the funding from Wells Fargo & Co. and New York-based Zilkha Capital Partners.

B3 was founded in 1996 to provide B2B solutions to the Warner Music Group and to other Warner Bros. properties. Wells Fargo and Zilkha join Warner Music Group, B3’s founding partner, as investors.

The company, under the leadership of CEO David Archambault, has provided services to the back-office operations of the e-stores of CNN Interactive, Rhino Entertainment, Warner Bros. Records, The Atlantic Group, Elektra Entertainment Group and the troubled Warner Bros. Studio Stores.

Now, Archambault is taking B3 outside the AOL Time Warner umbrella, where he hopes to serve an array of clients with B3’s B2B e-commerce platform called “buildIT.” The platform is designed to streamline and simplify e-commerce for financial institutions, portals and large corporations with multiple divisions.

Archambault who answers to directors from Warner Music Group, Wells Fargo and Zilkha declined to comment specifically on the company’s financials. The company has grown its staff from three to 40, and Archambault said B3 is hiring more.

Aerospace Sites Take Off

While countless B2B startups crashed and burned in the aerospace sector during last year’s Internet mania, newborn companies with solid business models are still getting funded.

One of the latest startups to lift off is Redondo Beach-based Aerospace Hardware Exchange, which went live in early February and already has a bustling commerce exchange.

According to CFO Jim Stephenson, AHX already has around 200 aerospace companies as members and has generated revenues after only one month of operation.

AHX claims to be the only “neutral” online marketplace dedicated to buying and selling aerospace hardware. That huge industry which involves the buying and selling of fasteners, bearings, bushings, electrical components, connectors, mechanical seals, fittings and adapters is dominated on the Web by the manufacturers themselves.

But brick-and-mortar industry giants like Boeing Co., Lockheed Martin Corp. and Northrop Grumman (all of which have their own B2B exchanges) are increasingly looking to partner with independent startups like AHX to make their online exchanges more comprehensive and user-friendly.

However, standalone business models like AHX’s will probably be slow to develop, in part because of the industry’s rigid quality control and traceability standards, according to Jon Kutler, president of Quarterdeck Investments.

Staff reporter Hans Ibold can be reached by phone at (323) 549-5225 ext. 230 or at hibold@labusinessjournal.com.

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