Stamps.com Inc.

Stamps.com Inc (NASDAQ: STMP) is a leading provider of Internet-based mailing and shipping solutions across the United States and Europe. The company operates through brands like Stamps.com®, Endicia®, Metapack®, ShippingEasy®, ShipEngine®, ShipStation®, and ShipWorks®. The company’s software solutions allow customers to print mailing and shipping labels for multiple carriers around the world through downloadable software, web-based user interfaces (UIs) and application programming interfaces (APIs).

Key Highlights:

• Strong Cash Flow Growth: The company reported strong growth in cash flow from operations of USD 247.338 million versus USD 137.153 million in FY19. The increase was driven by improved net profit and improved working capital management.

FY20 Cash Flow from Operations (Source: Company Report)

• Impressive Top-line Growth: The company has a solid history of consistent top-line growth over the years, supported by growth from Annual Paid Customers, which is encouraging. The company is targeting Individual Mailers, Small Business and Home Office Mailers, Enterprise Mailers, eCommerce Shippers etc. Moreover, due to the increasing trend of ‘work from home’, the group witnessed a strong customer addition of ~60% on y-o-y during Q4FY20. Moreover, the scope of growth remains strong, supported by a strong potential customer base.     

Historical Trend (Source: Company Presentation)

FY20 Financial Highlights:

• STMP announced its full-year result, wherein the company posted total revenues of USD 757.980 million, higher than USD 571.850 million in FY19. The growth was driven by strong momentum from the service segment (USD 705.544 million versus USD 523.528 million in FY19).
• Gross profit stood higher at USD 579.164 million compared to USD 416.634 million in FY19. The increase was driven by higher revenue, partially offset by the elevated cost of revenue (USD 178.816 million versus USD 155.216 million in FY19).
• Income from operations increased drastically to USD 198.152 million from USD 93.563 million in FY19. The quarter was marked by higher sales and marketing costs (USD 166.742 million versus USD 134.226 million in FY19), coupled with higher Research and development expense (USD 95.600 million versus USD 78.041 million in FY19). 
• The group reported a net income of USD 178.665 million, higher than USD 59.229 million in FY19.
• The corporation reported its cash and cash equivalents at USD 443.552 million, while total assets were recorded at USD 1,297.299 million.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company operates in segment where technology needs constant innovation in order to stay competitive. Notably, a change in consumer preference, entry of new players etc., may affect the demand of the group’s offerings.

Valuation Methodology (Illustrative): Price to Earnings

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

The company collaborated with United Parcel Service (UPS) and is offering attractive discounts to its targeted customers, which is likely to support the upcoming volumes. Moreover, the new collaboration would allow its customers to have easy access to UPS within the same familiar platform, offering them more choice and control over their shipping needs, which is impressive. The company has an impressive business model and has reported strong performance in the recent past. We have valued the stock using Price to Earnings based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered the industry (Technology) median as a proxy to target multiple for valuation purpose. Considering the above-mentioned facts, we give an ‘Expensive’ rating on the stock at the current closing price of USD 176.51 on March 5, 2021 and would advise investors to wait for a better entry point.

STMP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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