The advent of e-mail and online bill payments, as well as the recession, have contributed to the difficult operating conditions the United States Postal Service (USPS) is facing. In fact, from 2007 to 2010 alone, total volume declined by a whopping 17%, to 177 billion pieces. Mounting losses led Postmaster General Patrick R. Donahoe to propose numerous short-term changes, including a one-cent increase in stamp prices (during 2012), the deferral of payments into a retirement plan, closure of roughly 3,700 post office branches and hundreds of processing centers, and the end of Saturday delivery. As part of a wider restructuring, the agency is also seeking to spin off retirement and health programs and renegotiate union contracts.
As the postal agency continues to hemorrhage cash, retailer Stamps.com (STMP) is prospering. Whereas the Postal Service continues to sell products primarily at retail locations, the company has taken its trade online, providing a plethora of postage and packaging solutions under license with the USPS. When a customer purchases postage for use through Stamps.com, he/she pays the face value of the postage, which is transferred directly to the USPS. Stamps.com earns revenue by charging a monthly fee ranging from $15.99 to $39.99 for its services, depending on the features and capabilities of the particular service to which a customer is subscribed.
Stamps.com’s bread and butter (accounting for 75% of total sales in 2010) is PC Postage Services, a program that allows users to purchase and print stamps directly onto envelops, plain paper, or labels, but has other sources of sales. The Mailing & Shipping Supplies Store (14%) sells shipping labels, postage printers, scales, and a slate of other offerings. PhotoStamps (8%) is a patented form of postage that allows consumers to turn digital photos, designs, or images into valid United States postage. Lastly, Stamps.com offers insurance (3%).
No matter what course of action the USPS ultimately takes on the restructuring front, Stamps.com looks set to prosper. In particular, the company’s business model is appealing on a number of fronts. Its customers save time by applying postage to letters or packages at home or in the office, generating mass mailings quickly and easily (often times in a single-step process). USPS deliverywomen and men pick up all packages and envelopes. Customers also stand to cut costs, with the ability to receive discounts of up to 15% off Priority Mail and 21% of Express mail, relative to USPS prices. Small and large businesses that meet certain higher volume requirements receive up to 28% off of Priority Mail and up to 32.5% off Express Mail.
In 2011, Stamps.com is on pace to register nearly a 20% year-over-year gain in revenue, to $101 million, catering to more than 340,000 registered users. What’s more, there appears to be more room for growth. There are reportedly around 35 million small- and medium-size businesses in the United States, indicating that the company has yet to gain meaningful market share.
There are only two other licensed postage vendors, Pitney Bowes (PBI) and Newell Rubbermaid (NWL). Stamps.com was the first company to be approved by the USPS, and currently services 80% of all online postage customers. It should continue to thrive as long as e-commerce continues to flourish. That said, recent agreements augur well for operations. A partnership with e-commerce behemoth Amazon (AMZN), enabling Marketplace users to print domestic and international shipping labels has wide potential. Additionally, a contract from the USPS to provide electronic postage for shipping transactions generated by Click-N-Ship, a web-based service, ought to enable Stamps.com to cater to an increasingly wide swath of consumers.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.