Last week a short seller who was famous back in the early 2000s said that he thought Stamps.com (STMP) was a scheme. Essentially Stamps.com resells discounted rates that the USPS gives to partners. The discounted rates are intended for high volume shippers as a way to gain market share from FedEx and UPS.
The short thesis is that Stamps is taking advantage of this program by allowing smaller scale shippers to use this program and that Stamps is merely flowing all this postage volume at low rates and that the USPS would wise up and eliminate the program. That short thesis started last July when stock was 75 and then stock went to 135. It has come back again leading to the stock to fall back to 105 and I think this is an opportunity. There is no new information out there to support that the USPS is going to change this program. If anything, the USPS has come out in further support but issues many new agreements (called NSAs) and last year they extended one resellers agreement for many years. If the USPS were going to review this, I do not think these events would have occurred. Also, the work I have done shows that the USPS views STMP as a technology partner by being able to aggregate thousands of small shippers and allowing them to come to the post office under a single manifest, thus saving them time and money. $6 billion of postage has flowed from STMP to the USPS and STMP makes $200M on that. So USPS pays 3% for customer acquisition and technology which sounds like a great deal for the post office.
All of that said, there is a legitimate argument that the post office may want to capture all of that revenue since it needs money. But would they disrupt what is a good thing for the USPS and give other shippers an opening? Priority mail volumes have been rising fast and since the USPS is a huge fixed costs business, more scale and more packages = better.
There is a good article on Seeking Alpha which goes into this debate from last year including some comments from the company so take it for what it's worth:
I think STMP offers an opportunity to capitalize on the growth of e-commerce and efforts by the USPS to aggressively take share from UPS and FDX. As more retail disappears and smaller ships go online, they need technology solution providers such as STMP. They do more than just offer postage online but help with shipping, logistics and warehouse/inventory management using software. The short thesis solely revolves around unfounded speculation that the USPS will do something when there is no evidence to that, only evidence pointing in the opposite direction. While reliance on STMP does mean STMP should trade at a discount (as any company with a large customer does), I think a small long position is warranted now that short interest is back to levels last summer before the stock ran up 90%.
Curious if anyone else has a different view on this company.
Thanks!
EDIT: I wanted to also mention that this time around, after the 90% run up, insiders have been selling a ton. So naturally this adds fuel to shorts. However, STMP has historically granted options every 3 years and stock sales have coincided with these sales. 3 years ago there was a similar sale at lower prices. In fact, management has not been great sellers of their shares. That said, cannot be too unexpected given the rapid rise and that much of their comp is stock-based. This did give me pause when stock was 135 but now 20% lower, I think risk / reward more in line.
Submitted April 12, 2017 at 11:29AM by andyznyc http://ift.tt/2nETtPU
