Stamps.com sticking to basics to reinvigorate core business.

AFTER an infamous foray into personalized postage that wound up being suspended by the U.S. Postal Service, Stamps.com has refocused its business, and fourth-quarter results indicate that the Santa Monica-based company is back on track.

The new focus is actually the old one--providing plain-vanilla online postage services to small- and medium-sized business customers.

For the October-December period, Stamps.com reported net income of $1.5 million, compared with a loss of $2.7 million for the like period a year earlier. Revenues surged 83 percent, to $11.7 million.

Most of that activity was driven by Stamps.com's 358,000 subscribers, mostly small- and medium-sized companies.

"One of the misconceptions about this business is that people think it's just consumers printing stamps at home," said George Sutton, Internet analyst at Craig-Hallum Capital Group, one of two analysts covering the stock. "But in reality, this is a business-to-business transaction."

Over the past year, Stamps.com has phased out a lower-cost subscription plan that amounted to about $5 per month in favor if its $15.99 per month subscription suite. The company signed up 64,000 new customers last year, and started offering shipping labels, hidden postage and integrated package insurance.

This year, it will reach out to even larger companies with new offerings, said Chief Financial Officer Kyle Huebner. In doing so, Stamps.com will be going after metered mail giant Pitney Bowes Inc.

The two settled patent infringement litigation in December 2003, entering into a five-year cross-licensing agreement. Under the settlement, Stamps.com's patent licenses are limited to non-traditional metering applications such as Internet postage, while Pitney Bowes' licenses may be used across the entire range of metering applications.

So far, Pitney Bowes has not ventured far into the online world, leaving Stamps.com with "a fairly benign competitive market, which is unusual in the online world," Sutton said.

If Stamps.com wants to take away Pitney Bowes' customers, though, it has to lure them into the "non-traditional" arena. "Pitney Bowes has never been aggressive in their online business," Sutton said. "It wants to protect its offline business more so than grow its online business."

Meanwhile, the Postal Service has said it is still in the "evaluation phase" of Stamps.com's personalized PhotoStamps program and has not indicated when it will make a final decision. (Avery Dennison Corp. has a similar program, although the photos are placed next to U.S. stamps rather than becoming stamps themselves.)

The trial program was placed in limbo after images of Unabomber Ted Kaczynski, Lee Harvey Oswald and other notorious figures slipped through screeners and wound up on official U.S. Postal Service stamps.

PhotoStamps produced 51,000 orders for personalized stamps and $2.3 million in revenues, Huebner said. Most of that impact was felt in the third quarter.

The online stamp market is just a fraction of the $65 billion postage market. The real challenge for Stamps.com is on the marketing side, according to Sutton. "We have consistently looked at this company as a very intriguing model in the early stages of a ramp-up in the business," he said, adding that acquisition is a possibility, although it "has never been a part of our investment thesis."