Debt-Free, Cash-Rich Firm Sticking to Internet Stamps.

THE share price of Stamps.com Inc. has become an easy target for ridicule. "It's worth less than a stamp," is the oft-repeated joke.

Not quite. But with lackluster quarterly revenues, no earnings, departing executives and a massive burn rate that only recently has been tamed, the Santa Monica provider of online mailing and shipping services has been duly punished by Wall Street.

Trading in the $3 range for months, Stamps.com is down 65 percent from its 52-week high of $6.88 last June. Since its glory days in the fall of 1999 when it reached $98.50, the stock has plummeted 98 percent.

At least a few figures stand out as impressive: $209 million in cash, no long-term debt, and a market cap at a reasonable $155 million. But while interim Chief Executive Bruce Coleman has slashed the burn rate, the company faces hefty legal costs. Pitney Bowes Inc., the Stamford, Conn.-based office equipment maker and Stamps.com competitor, is alleging patent infringement regarding online postage and shipping services.

Stamps.com fired back last week by suing Pitney Bowes, claiming it had infringed upon four of Stamps.com's online postage patents. "That's the last remaining overhang on the stock," said B. Riley & Co. analyst Michael Crawford. "Otherwise, I don't see why the company wouldn't trade up at least at its cash flow."

Well, there's the profitability thing. Coleman said he expected Stamps.com to break even by year-end.

Now on his 10th assignment as an interim turnaround chief, Coleman has cut research and development, staff and marketing costs, and lowered the monthly burn rate from $50 million last June to $13.6 million by last March. Crawford said he expects the burn rate to drop to $5 million by June.

Coleman also jacked up prices for the company's basic service, a move that he concedes will lose customers but increase revenues.

Coleman replaced former Stamps.com Chief Executive John Payne, who stepped down last October. Shortly after Payne's resignation, several others took flight, including two senior vice presidents and board member David Bohnett. Under Coleman's watch, the staff was cut by more than 50 percent to 98 employees, down from a peak of 550 in 1999.

Are investors punishing Stamps.com unfairly?

"My view would be that they are doing what's prudent," Coleman said. "We have not yet made the revenue engine go."

For the first quarter ended March 31, Stamps.com reported revenues of $5.3 million, about the same as the previous quarter and up from $2 million in the like year-earlier period. Coleman said he expects further improvement in the next four months when customer acquisition costs drop and various promotions kick in.

Stamps.com reported a net loss of $176.7 million ($3.60 per diluted share) for the first quarter, compared to a loss of $36.9 million (86 cents per share) in the like year-earlier quarter.

The first quarter loss can be attributed to a write-down of $174 million in goodwill from the sale to United Parcel Service Inc. of iShip, an online shipping and tracking service that Stamps.com acquired last year for $238 million.

A big unanswered question is whether there is a market for online postage. While the company has grown its customer base from 188,000 last year to more than 322,000 as of last March, the future is uncertain.

"The long-term question is if buying postage will be accepted as a convenient thing to do and if it's the way people will buy postage," said Redpoint Ventures managing partner and Stamps.com board member Brad Jones. "It's not a physical transaction or a physical product, and those are the most viable Internet businesses. It really is a financial transaction."

If the market does grow, Stamps.com will have a strong market position. Last month, it scooped up a portfolio of 31 patents and trademarks from former rival E-Stamp Corp. That San Mateo company said it will leave the online postage business and focus instead on shipping and logistics.

With E-Stamp out, Pitney Bowes is Stamps.com's only formidable competitor. "The Internet postage market is nascent and small so far, but over time this market could grow and Stamps is in the best position to be the leader in the marketplace," Crawford said.

Stamps.com Inc.
Stock Prices
YEAR (Dec. 31)                    2000     1999
Revenue (thousands)            $15,200     $358
Operating Expenses (millions)    246.7     59.3
Operating Loss (millions)        (231)     (59)
Net Loss (millions)              (231)   (56.5)
Loss Per Share                 ($4.54)  ($2.59)

Quarterly Net Losses (millions)

SUMMARY

Business: Online postage and shipping

Headquarters: Santa Monica

CEO: Bruce Coleman (interim)

Market Cap: $ 155 million

Dividend Yield: N/A [*]

Total Liabilities: $10.5 million

P/E Ratio: N/A [*]

Long-Term Debt: None

(*) Stamps.com does not pay dividends and has no earnings.

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