Stamps.com Inc. Earnings Soar as Shippers Flock to Its Platform

By Joe Tenebruso Markets Fool.com

Stamps.com (NASDAQ: STMP) on May 3 reported robust growth in revenue and profits in the first quarter, prompting the provider of online postage and shipping software to raise its earnings guidance for the year ahead.

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Stamps.com results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Revenue

$105.040 million

$81.837 million

28%

Net income

$33.138 million

$13.238 million

150%

Earnings per share

$1.82

$0.71

157%

Data source: Stamps.com Q1 2017 earnings release.

What happened with Stamps.com this quarter?

Total revenue jumped 28% year over year to $105 million, driven by a 30% rise in mailing and shipping revenue, to $102.3 million.

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These results were fueled by an 11% year-over-year increase in paid customers to 722,000 and a 17% jump in monthly average revenue per unit (ARPU) to $47.36. Additionally, the average monthly churn rate improved to 2.4%, down from 2.7% in the first quarter of 2016.

Large shippers are increasingly turning to Stamps.com. Image source: Getty Images.

During a conference call with analysts, CEO Ken McBride said that Stamps.com was particularly successful in acquiring new shipping customers, who drove a large portion of the ARPU increase. "For the shipping area, we're able to increase ARPU above the baseline monthly service fee with partnership ... agreements that allow us to monetize the customer's package volume," McBride explained. That's in contrast to traditional small-business office users, who typically do a minimal amount of shipping and therefore are less likely to pay significantly more than the monthly service fee.

McBride also noted that a higher proportion of shippers are helping to improve Stamp.com's overall customer retention metrics. "They tend to have lower churn versus traditional small business office users because shippers use our product more in their core operations," McBride said.

In turn, higher ARPU and lower churn are helping to improve Stamps.com's profitability. Earnings before interest, taxes, depreciation, and amortization (EBITDA) -- adjusted to exclude stock-based compensation expense, acquisition-related charges, and certain other items -- leapt 47% to $51.2 million, with adjusted EBITDA margin rising to 48.8% from 42.5% in the prior-year quarter.

All told, adjusted net income soared 57% year over year to $33.2 million, and non-GAAP EPS -- which was boosted by share buybacks -- surged 62% to $1.83.

Looking forward

These results prompted Stamps.com to raise its 2007 full-year outlook, including:

  • Total revenue of $405 millionto$430 million, compared to previous estimates of $400 millionto$425 million.
  • Adjusted EBITDA of$205 millionto$225 million, up from $200 millionto$220 million.
  • GAAP EPS of $4.78to$5.69, versus $4.20 to $5.10.
  • Non-GAAP adjusted EPS of$7.00to$8.00, versus $6.00to$7.00.

Looking even further ahead, management remains confident that Stamps.com can grow sales at a 20% annualized pace, as explained by Stamps.com executive Jeff Carberry during the company's earnings call:

We are very well positioned to capitalize on the shipping opportunities in our business. We expect our long-term growth rates to naturally benefit from the growth in e-commerce sales, which have been growing at approximately 15% year over year in 2016. In addition, we believe there are opportunities to grow in excess of e-commerce growth rates with the adoption of our multicarrier and other technology solutions. As a result, our five-year revenue growth rate target is approximately 20%.

Additionally, Carberry said that investors should expect adjusted EBITDA margins to remain relatively stable compared to today's levels, as Stamp.com intends to focus on "investing for revenue growth as opposed to expanding margins at the expense of that growth" in the years ahead.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Stamps.com. The Motley Fool has a disclosure policy.