NASDAQ: STMP

Short Investment Thesis

Price at Publication: $108.32
Price Target: $74
April 9, 2016
Joshua Kim, Blake Shirk, Brandon Shirk, and Thomason Waldo
Texas A&M University

Pitch Highlights
Overheated expectations on
growth can only disappoint
Unprecedented entry by
newer, more innovative
competitors
Trending movement to internal
services and direct USPS deals
Balance sheet and metric
removal
Outdated platform and
horrendous customer reviews

Short: STMP

Company Data
52-week range
Enterprise Value (M)
Avg. Daily volume (3 mo.)
Dividend yield
SI as a % of float
Net cash/market cap

$60-124
$1,990
480,461
10.10%
3.60%

Price at Publication: $108.32

Current Price: $99.26
Price Target: $74.00

Overheated Growth Expectations Will

Disappoint
2014 and 2015 top line
growth was boosted by
ShipStation, ShipWorks,
and Endicia acquisitions
Maxed out RCF will bring
M&A spree to a close
Expect STMP to revert to
normal quarterly growth
rates of 3.3%
Endicia brings higher
COGS/Sales and
SG&A/Sales, affecting FCF

Short: STMP

Rapidly Slowing Growth Masked by M&A

Key Takeaway: Flagging organic growth into a

declining end market will no longer enjoy M&A boosts

Short: STMP

Unprecedented Entry by Sleek

Competition
Direct Competition:

Short: STMP

Multi-Carrier
Solutions:

Movement to Internal Services and

USPS Deals
Online retailers
increasingly using inhouse services to
connect directly to
carriers
Emergence of
matchmakers, such as
Shippo, with optionality
in carrier choice
Movement of large
online retailers towards
providing their own
shipping services

Short: STMP

Balance Sheet: Key Issues

Accounts Receivable up 350%
from FY14 to FY15, now
accounting for 40% of current
assets
Real increase of $43M, of which
Endicia accounts for ~$6.5M

Goodwill (37% total assets)

overstated
DSO up 200% YoY
Indicates explosion of credit
sales with a tripling of time
required to collect

Short: STMP

Removal of Important Business Metrics

Churn Rate

Breakdown of percentage of business

coming from new customers versus
old
Gauges how dependent the business
is on chasing new customers

Short: STMP

Customer Acquisition
Cost

Small Business Customer

Acquisition Spend also removed
ARPU maintained while valuable
related metrics removed - picture
now incomplete
8

Outdated Interface and Atrocious

Reviews
Outdated interface appears to be a relic of the 90s
One star out of five on Consumer Affairs and a 1.5 star rating on Yelp.com
Sneaky promo offerings and difficult cancellation

Short: STMP

Industry Outlook: A Decade of Decline and Counting

USPS first class mailing volume
has declined from 90.7B in
2008 to 62.4B in 2015
Internet saturation in the U.S.
rose from 43% in 2002 to 81%
in 2012
The rise of online billing and
online communication mediums
threaten traditional mail

Potential Risks
Tax Asset

$57M deferred tax asset can be used to support the bottom

line in the future

Synergies

Potential that synergies are realized sooner and to a greater

extent than anticipated

Pricing Power

Potential for increased pricing power post Endicia acquisition

USPS
Protection

Potential that, against the current trend, USPS chooses to

bar any further companies from entering competitive space

Short: STMP

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Base Case Valuation

Base Case DCF
(Figures in thousands)
Revenue
Growth
COGS
COGS/Sales
Gross Profit
SG&A
SG&A/Sales

2015
205489
45%
43935
0.21
170022
98543
0.4796

2016
288312
12.1%
63429
0.22
224884
143339
0.50

2017
323121
12.1%
71087
0.22
252034
159029
0.49

2018
362131
12.1%
79669
0.22
282463
176418
0.49

2019
405852
12.1%
89287
0.22
316565
195688
0.48

2020
454851
12.1%
100067
0.22
354784
217039
0.48

Key Assumptions
Exclude Q415 revenue jump and extrapolate Q315. Then add Endicia on top
Build out growth for STMP and Endicia separately
Endicia brings higher COGS/Sales and SG&A/Sales. Synergies are realized over the course of
years, not months
Unlevered FCF
Total Cash Flows-Perpetuity Growth

75,594
75,594

Enterprise Value-Perpetuity Growth

1,304,159
$
69.50

Value per Share

Short: STMP

20,301
20,301

41,836
41,836

50,508
50,508

60,447
60,447

71,830
1,698,124

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