USPS Financial Results Portend Strong Q4 for Stamps.com

The USPS reported its fiscal first quarter 2019 results this past Friday, February 8, 2019. Most notably, Shipping and Packages revenue increased 8.7% Y/Y on volume growth of 5.4%. The solid peak season performance points to a healthy backdrop during Stamps.com’s (STMP) seasonally strongest quarter. Beyond its quarterly results, the USPS also posted its Monthly Trial Balance for the month of December, which contains useful data points pertaining to PC Postage. Specifically, we now know that PC Postage revenues increased 7.2% Y/Y in December, bringing total calendar Q4 ’18 PC Postage revenues to nearly $1.8B, or an increase of 10.2% Y/Y. The reported PC Postage revenue data correlates well with Stamps.com’s customer postage printed metric, which we consider important given the implications for the number of paid customer accounts and monetizable transaction volumes. We note that the last quarter of the calendar year is the only one in which we see all three months of PC Postage data prior to Stamps.com’s quarterly earnings release, and thus provides a better indication of potential performance than the two months of data typically available for other quarters. In this regard, a double-digit growth rate in PC Postage revenues bodes very well for Stamps.com’s Q4 results as we have assumed just an 8% growth rate in customer postage printed for the quarter and already forecast revenues, adjusted EBITDA and non-GAAP EPS above consensus.

In conjunction with the release of its quarterly results, the USPS also held a financial call. During the Q&A session, USPS management was asked to elaborate on the Board of Governors’ review of its Negotiated Service Agreement (NSA) program and subsequent process changes. The Board of Governors had held an open session that same day to review the USPS’ financial results and provide an update of its activities since the last session. In the Board of Governors open session, an update regarding the undertakings of the audit and finance committee indicated that the committee had reviewed the USPS’ reseller and channel partner relationships, parcel select relationships and other discounts offered like market dominant workshare discounts. In response to the question, management refrained from stating much given the competitive nature of the NSA program, but suggested that the changes were largely internal to ensure that the USPS can appropriately satisfy reporting requirements and that customers were unlikely to notice any changes. While investors may consider the review of the USPS’ discounting practices as a potential risk, we believe the scrutiny may ultimately bolster sentiment provided that Stamps.com’s growth continues unabated as the year progresses. Said differently, if Stamps.com’s results and outlook for 2019 suggest nothing has changed after a period in which the USPS has been under heightened scrutiny, we believe the overhang from concern that the company’s strategic partnership with the USPS may be at risk will finally lift.

Disclosure(s):

The author holds a long position in Stamps.com (STMP).