UPS Signs Agreement to Offer Discounted Shipping Rates to Stamps.com's Customer Base
After the close yesterday, UPS unveiled the UPS Digital Access Program, a series of strategic alliances and agreements designed to make its services more broadly available to e-commerce merchants. The press release specifically notes that UPS has signed an agreement with Stamps.com (STMP) to offer discounted shipping rates to customers of ShipStation, ShippingEasy, ShipWorks, Stamps.com and Endicia. Other preferred partnerships under the Digital Access Program highlighted by UPS include Shopify (SHOP), ShopRunner, and Square (SQ). Details pertaining to the economic arrangements underpinning these partnerships remain sparse, but we believe the agreement between Stamps.com and UPS validates the former’s decision to pursue relationships with other carriers outside of the United States Postal Service (USPS).
As Stamps.com’s multi-carrier platforms, ShipStation, ShippingEasy, and ShipWorks, already provide access to UPS rates, we anticipate at least a modest benefit from the agreement in Q4. That said, the company’s USPS-only platforms, Stamps.com and Endicia, account for the majority of the 740,000 subscribers in aggregate, which means more material revenue contribution is subject to the introduction of multi-carrier capabilities across those services. Our best guess is that integration of UPS rates within Stamps.com and Endicia is likely a priority heading into 2020.
Shares of STMP were up as much as 20% in after-hours trading, reaching levels well in excess of our $59.00 price target, which represents a FY ’20 EV/EBITDA multiple of 10x. We note, however, that our model does not currently incorporate any upside from the UPS agreement or other potential partnerships the company could strike in the future. As such, we plan to reassess our projections and price target following the company’s upcoming earnings release on Thursday, November 7, as we anticipate an update on the state of the USPS’ reseller program and the latest developments with UPS and other potential carrier partnerships at that time. While we currently anticipate upward revisions to our model and price target, we are not inclined to chase shares higher until we have more clarity on the level of contribution expected from the partnership with UPS.
Our full report with a model and disclosures is available here.
Disclosure(s):
The analyst, a member of the analyst’s household, and/or an account in which the analyst exercises discretion hold(s) a long position in the common stock of Stamps.com (STMP).