Q3 '19 Earnings Preview
Stamps.com (STMP) reports Q3 ’19 results on Thursday, November 7. Our estimates sit slightly below consensus for the quarter and reflect a fair amount of conservatism given uncertainty over contribution from the company’s reseller partnerships. That said, we remain comfortable with our estimates and suspect that Stamps.com will also meet, if not exceed, the higher consensus forecast. Of course, the results are likely to be overshadowed by management’s commentary regarding its recent partnership agreement with UPS and any update on potential changes to the United States Postal Service’s (USPS) reseller program. We expect the former to begin contributing modestly in Q4, and we hear that the USPS’ resellers are in receipt of new term sheets expected to take effect in the new year. In this regard, both the initial benefits of the new partnership with UPS and the maintenance of existing reseller economics through the holiday period point to a potential uplift in management’s FY ’19 guidance, or a narrowing towards the high-end at the very least. In 2020 and beyond, our estimates already incorporate anticipated compression in reseller contribution, so we are primarily focused on enumerating the potential contribution from UPS, which has yet to be factored into our model. Recall that our estimates and $59.00 price target, which reflects a FY ’20 EV/EBITDA multiple of 10x, remain under review pending the upcoming print.
For Q3, we estimate total revenues of $122.9 million, adjusted EBITDA of $22.0 million, and non-GAAP EPS of $0.66, slightly below consensus of $123.7 million, $24.4 million adjusted EBITDA, and $0.72, respectively. PC Postage revenue data through the first two months of the quarter reveals a 7% Y/Y increase, leaving us comfortable with our estimates. We note that our projections assume the loss of some reseller revenues beginning in Q3 as not all contracts had been extended through year-end when the company last reported. While we remain unsure whether these contracts were ultimately extended, chatter that new terms will take effect in 2020 suggests the program dynamics entering the year will remain intact for 2019 and therefore portends a potential uplift in guidance for the current year. As for the newly announced UPS partnership, we will be attuned to commentary regarding the economic incentives available to the company, the anticipated pace of adoption by the company’s 740,000 plus subscribers, and the potential financial contribution in 2019 and beyond.
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).