Shares of online mail-supplies firm Stamps.com plunged by over 50% in pre-market trading on Friday after the company disclosed during the fourth quarter and full-year 2018 earnings call that it will not renew its exclusive agreement with the U.S. Postal Service (USPS).
Per Stamps.com’s CEO, Kenneth McBride, prevailing shipping trends have made it necessary to broaden the choice available to customers. Consequently, the online mail supplies firm was left with no option but to ‘embrace other carriers’, according to MarketWatch:
Our customers can no longer survive on just the USPS, and we don’t see that as a viable option for the next five years. So basically that was our premise, is like, no matter what, this company can no longer be exclusive given the trends in the shipping market.
The sharp drop in the company’s share price has seen the stock touch lows last experienced in 2016. Shares of Stamps.com have never fallen by over 25% in one session.
With the revenue-sharing deal with USPS not up for renewal, Stamps.com expects earnings to drop by close to 50%. Sales will also decline considerably.
Revenue and Net Income Rose, But Investors Vote With Their Feet Over End of Exclusive Deal
In Q4 2018 results that were released yesterday, revenue rose by 29% year-on-year to reach $170.2 million. Net income increased by 6% to $42.7 million compared to $40.2 million recorded in 2017. On a per share basis, net income for the quarter rose by 7% year-over-year to reach $2.30. ln 2017 during a similar period, net income per share was $2.15.
Total revenue for 2018 increased by 25% from the previous year to $586.9 million. Net income for 2018 went up by 12% from 2017 to $168.6 million. Year-over-year, income per fully diluted share rose by 10% to $8.19.
Stamps.com Wants to ‘See other people’, USPS Not Happy
While revealing that the exclusive agreement with the postal service would not be renewed, executives of the mail supplies firm disclosed that negotiations between it and USPS had broken down. However, the two organizations have not completely ended their relationship. According to McBride, Stamps.com will still partner with the USPS whenever appropriate. But going forward it will also work with other service providers such as FedEx, United Parcel Service and Amazon Air.
In the United States Stamps.com plans on growing its list of partners to 40 carriers. Worldwide the online mail-supplies firm intends to build relationships with 450 partners.
Brilliant Long-term strategy or Miscalculation for Stamps.com?
By entering agreements with other carriers, Stamps.com will be in a position to take advantage of the growing e-commerce sector. This will potentially result in growth in revenue and profits in the long term, according to McBride:
So, if you’re looking in longer term, once we have additional revenue deals in place, whatever those economics may be, ultimately what that growth and revenue is going to be predicated on and correlated with is going to be e-commerce trends, and those look to be systemically quite strong.