Stamps.com's Disappearing Growth (STMP)

Needham & Co., which initiated coverage on Stamps.com in January 10 with a "buy" rating, dropped its rating to a "hold" today. Investors should wonder what took them so long.

Stamps.com, which allows businesses and consumers to buy US Postal services stamps online, was a fast-growing business for several years. Revenue moved from $21.2 million in 2003 to $61.9 million last year. The company's operating loss in 2003 was $12.6 million. Stamps.com had an operating profit of $8. 4 million in 2005.

After posting rapid revenue increases on a quarter-over-previous-quarter basis in the September and December 2005 quarters, the topline flattened out. December 05 revenue was $20.6 million and March 06 was flat at $20.5 million. Operating income dropped from $3.6 million in the December quarter to $2.3 million in March.

Guidance for the year was for revenue to be as low as $82 million. That would mean no pick-up in revenue at all in the last three quarters of 2006. Not particularly good news for a company that tripled revenue from 2003 to 2005.

The company was recently added to the S&P SmallCap 600, but that has not helped the stock on Wall Street.

After a run from $15.64 in October 2005 to $39.24 in April, the stock has come back to $24.56.

If Stamps.com does not show some growth in the next quarter or two, the stock could move back toward its 12-month bottom.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own stocks in companies he writes about.