Q1 '21 Earnings Preview

Stamps.com (STMP) reports Q1 ’21 results on Thursday, May 6. For those that missed our missive on the United States Postal Service’s (USPS) ten-year plan and monthly data for February (see “K. Liu’s Week in Review” published on March 27, 2021), our opinion at the time was that Stamps.com was well positioned to meet or exceed our expectations for Q1. With a slew of companies levered to e-commerce delivering upside surprises this past week, we continue to believe results are likely to surpass Street expectations. Of course, the trajectory of growth as the company begins to lap more challenging comparisons arising from the early days of the pandemic remains the big unknown. For those that have followed Stamps.com for some time, there should be no doubt that given this uncertainty, management’s commentary will convey a degree of conservatism with respect to the outlook, including the potential for revenue growth to turn negative in the near-term. That said, we remain optimistic that shipping volumes will prove more resilient in the face of challenging comparisons than currently reflected in consensus estimates and enable Stamps.com to ultimately post solid growth in FY ’21.

Exhibit I: Our Estimates Versus Consensus

For Q1, we project revenue, adjusted EBITDA and non-GAAP EPS of $184.4 million (+21.9% Y/Y), $50.9 million (27.6% margin) and $1.63, respectively. Although our estimates sit slightly below Street expectations, we have no qualms regarding the company’s ability to meet the higher consensus forecast. In fact, we believe a beat is the likely scenario, albeit with less upside than seen over the past year. Our confidence is grounded in the 30% Y/Y increase in USPS PC Postage revenues through February coupled with our assumption that normal seasonality and stimulus spending in March likely sustained that growth rate through quarter-end. Moreover, UPS recently highlighted record average daily volume growth of 35.6% for its SMB business in Q1, which was aided by the addition of nearly 150,000 new digital access program accounts. Considering the importance of these strategic partnerships to Stamps.com and that our estimates are underpinned by a mid-20% growth rate in PC Postage revenue, the data points bode well for another positive print. As for the outlook, recall that management previously opted not to provide formal guidance due to a wide range of scenarios. We think that will be the approach once more.

Beyond Stamps.com’s strategic carrier relationships, data points from others levered to e-commerce also suggest shipping volumes in Q1 continued to benefit from pandemic-related tailwinds. Amazon (AMZN) reported domestic revenue growth of 39% Y/Y in Q1 with third-party seller services revenue increasing at an even faster 60% clip. eBay’s (EBAY) gross merchandise volume (GMV) rose 24% Y/Y for the quarter, including a 36% increase in U.S. GMV. Pitney Bowes’ (PBI) e-commerce segment saw revenue increase 40% Y/Y, reflecting a 23% increase in domestic parcel volumes, a more than doubling of cross-border volumes and a 36% increase in digital services volumes. Last but certainly not least, Shopify (SHOP) posted a whopping 114% Y/Y increase in GMV growth.

As far as where growth rates revert to as vaccination rates rise and lockdown restrictions are lifted, that remains up for debate at this juncture. Among those referenced above, eBay sounded the most cautious note indicating that on a FX-neutral basis, marketplace volumes are expected to decline in the high-single to low-double digit range during Q2. Amazon guided Q2 revenue ahead of expectations, citing strength across all of its segments and noting that Prime Day moves to Q2 this year. Pitney Bowes reaffirmed its prior low to mid-single digit growth expectations for the year while guiding for mid- to high-single digit growth in Q2; management expects growth in 1H to be stronger than 2H. Finally, Shopify continues to anticipate strong growth for the year but noted that seasonality may be a little less pronounced given the potential for consumer spending to move offline during the latter half of the year. With all this in mind, we think our current estimates for Q2 may be overly cautious while the seasonal ramp reflected in our back half assumptions may need to be revisited. On the whole, we think our full year expectations, which sit above consensus, remain achievable and are consistent with the commentary coming from those tied to e-commerce growth. As concerns regarding the near-term outlook for e-commerce amid the lifting of lockdown restrictions begin to dissipate and the focus returns Stamps.com’s opportunity to further monetize volumes domestically and expand internationally, we see shares re-rating much higher. Our price target remains $358.00, representing a FY ’21 EV/EBITDA multiple of approximately 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).