Another Beat In Store for Q4

Stamps.com (STMP) reports Q4 ’20 results on Wednesday, February 17. As we have consistently opined since the release of the United States Postal Service’s (USPS) monthly data for November, Stamps.com is poised to meaningfully outperform its guidance once again. With the data for December now in hand, our confidence in a beat has only grown. Of course, a strong Q4 may already be a foregone conclusion in the minds of investors and the focus will instead be on management’s guidance for FY ’21. In our opinion, a guidance midpoint for flattish revenue and adjusted EBITDA versus the prior year bracketed by a low double-digit move in both directions would be reasonable considering the ongoing pandemic and pull forward of e-commerce growth into 2020. Given management’s penchant for conservatism, however, we surmise the initial view for 2021 may call for flattish growth at the high-end of guidance. Nonetheless, our hope is that after observing the progression of guidance over the course of 2020 and the ensuing quarterly performances, investors will take any conservatism in the outlook in stride.

Exhibit I: Our Estimates Versus Consensus

Management’s FY ’20 guidance implies Q4 revenue, adjusted EBITDA and non-GAAP EPS of $153.0-$183.0 million, $36.3-$56.3 million and $2.10-$3.10, respectively. Our revenue and adjusted EBITDA estimates sit well above guidance as we believe management’s expectations were set conservatively due to the uncertain impact of COVID-19 on the economy and signs of deceleration in e-commerce growth. Following the release of the USPS’ monthly data for December, however, we now know that PC Postage revenue increased 46% Y/Y in Q4 and growth during peak season accelerated from the trough in October. As our Q4 estimates are predicated upon PC Postage revenue growth in the low-30% range, we expect Stamps.com to deliver results well in excess of our Street high estimates. That said, we see no benefit to raising the bar further at this juncture and are leaving our prior estimates unchanged. For those wondering how much upside is in store, we think quarterly revenue and adjusted EBITDA of $225 million and $90 million, respectively, are within reach. As for non-GAAP EPS, swings in the tax rate associated with management’s option exercises are likely to make for noisy comparisons but suffice to say, upside on the top line should translate into outperformance on the bottom line.

Considering where we think Q4 results ended up, that would imply Stamps.com finished FY ’20 with approximately $775.0 million in revenue and over $280.0 million in adjusted EBITDA. Thus, if management’s guidance includes the potential for flattish growth Y/Y, current consensus expectations for $773.6 million in revenue and $251.9 million in adjusted EBITDA should fall within guidance. Our FY ’21 estimates include revenue of $784.5 million and adjusted EBITDA of $262.1 million, which we believe to be conservative given the ongoing tailwinds benefiting e-commerce.

Last but not least, we are introducing our FY ’22 estimates. While we typically would have published our forecast several quarters ago, the dramatic surge in growth arising from the pandemic and significant uncertainty as to the extent that growth is sustainable gave us pause. While we acknowledge that we have no better visibility today, we are of the mindset that consumer shopping behaviors have shifted further in favor of e-commerce and online sales will continue to represent a greater share of overall retail sales. As such, we believe that revenue growth in the low double-digit range is plausible along with a return to the high margins achieved in 2020. Specifically, our FY ’22 estimates include revenue of $871.7 million (+11.1% Y/Y), adjusted EBITDA of $304.0 million (34.9% margin) and non-GAAP EPS of $8.48. Our price target remains unchanged at $358.00, representing a FY ’21 EV/EBITDA multiple of 25x.

Our report with 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).