Electronic Toll Roads Support a Significant TAM
Stamps.com (STMP) boasts hundreds of partner integrations across its product portfolio, providing customers with seamless access to a broad network of online marketplaces and shopping carts; regional, national and international carriers; and other business applications and integration tools. These connections facilitate the efficient processing of orders wherever they originate, optimize the time and cost of fulfillment and ensure critical business applications are updated with the latest transaction data. In our view, Stamps.com provides the electronic toll roads enabling online merchants and other high-volume shippers to deliver upon increasing consumer expectations for fast and free shipping. In exchange, Stamps.com collects both monthly subscription fees as well as take-rates based on shipping volumes. Thus, in evaluating the company’s total addressable market, we consider both the potential number of paid subscribers as well as the overall dollar amount of shipping revenue.
Although our focus is largely on Stamps.com’s TAM in shipping, we would be remiss if we failed to acknowledge the significant revenue opportunity available even from its legacy mailing focus. Recall that the company historically targeted SOHO customers, which we consider to be companies with fewer than ten employees. The latest data available from the U.S. Census Bureau’s Statistics of U.S. Businesses (SUSB) indicates there are approximately 4.7B domestic firms with less than 10 employees. At the current monthly rate of $17.99 for a Stamps.com account, mailing represents a $1.0B revenue opportunity for the company. Based on management’s prior comments regarding the mix of mailing and shipping revenues, we estimate the company generates between $100MM-$110MM in annual mailing revenues at present. Of course, the decline in snail mail and corresponding rise of email tamps down the opportunity, but management believes low single-digit growth in mailing remains achievable even amidst secular declines. Further supporting the notion that mailing remains a large market opportunity is competitor Pitney Bowe’s annualized North America Mailing revenue run rate of over $1.2B.
Stamps.com’s multi-carrier shipping solutions carry monthly subscription fees of at least $25.00 per month for customers with over 50 shipments per month and generally reach well in excess of $100.00 per month for unlimited transaction volumes. Shippers may include both small and large retailers with an online presence, distributors and wholesalers, warehouse operators and other third-party fulfillment service providers. We note that the U.S. Census Bureau’s SUSB data classifies approximately 1.4MM firms within the manufacturing, retail, wholesale, transportation and warehousing industries. Applying the monthly pricing range mentioned earlier for Stamps.com’s multi-carrier shipping solutions implies an addressable market opportunity of anywhere from $400MM-$1.6B. Unlike mailing, however, shipping also provides for a take-rate on volumes, which may arise from negotiated transaction fees, postage and carrier rate arbitrage or other volume-based incentives offered by carriers. As such, applying a nominal take-rate to total carrier revenues may provide a reasonable proxy for the potential market opportunity as it relates to volumes. In this regard, we note that in FY ’18, the USPS generated total operating revenues of $70.6B, of which $21.5B was from shipping and packages. FedEx reported $65.5B in revenues for its FY ’18, while UPS has posted $70.9B in sales in the TTM period ended September 30, 2018. A 1% toll on just the tier 1 carriers in the U.S. already amounts to an additional $1.5B+ in addressable market opportunity. While Stamps.com’s monetization of volumes principally arises from the USPS today, we believe other carriers large and small may ultimately seek to forge more strategic partnerships with the company given the opportunity to tap into a large, growing base of shippers.
Disclosure(s):
The author holds a long position in Stamps.com (STMP).