The company saw a big decline in their photostamps business despite higher marketing spending. It isn't immediately clear why this business has fallen off. But it appears that Stamps.com will refocus on their PC software business.
Stamps.com looks fairly cheap. Pro-forma free cash flow minus option expense is about $0.78/share. The company has no debt and about $4.70 in cash per share. They have been and will likely continue to aggressively repurchase shares. Stamps.com enjoys a safe little competitive niche. The business enjoys huge margins with big returns on capital.
Stamps.com has significant deferred tax assets valued at about $102 million, most of which don't begin expiring until 2018. These tax assets are not listed on their balance sheet as the company is making the worst case assumption that they are all forfeited. At present they are paying almost zero taxes. It is possible that the company loses these assets if a shareholder owning more than 5% of the company makes a big shift in their holdings.
We think it unlikely that this will happen. Any investor willing to buy over $14 million in Stamps.com shares isn't going to do something which would hurt the long-term value of the company by several dollars a share. We think the primary negative of the provision is it dissuades a lot of the larger small-cap institutional investors from buying the stock.
At present it looks like 2008 analyst estimates are assuming that Stamps.com becomes a full taxpayer. Should the company lose the tax assets, free cash flow would probably be closer to 50 cents a share.
Full Disclosure: We own shares of Stamps.com.
STMP 1-yr chart: