Personal Finance

Why Stamps.com Dropped 14% This Morning

Man gesticulating at computer with an error message

What happened

Shares of print-your-own-postage service Stamps.com (NASDAQ: STMP) fell sharply this morning, dropping nearly 14% when a line turned up in the company's 10-Q filing with the Securities and Exchange Commission describing an initiative by the U.S. Postal Service to renegotiate its contract with the company.

The shares have recovered somewhat from the initial shock, and were trading down "only" 2.7% as of 1:40 p.m. EDT on Thursday.

Man gesticulating at computer with an error message

Investors in an online postage provider stamped their feet this morning. Image source: Getty Images.

So what

Here's the relevant language from the SEC filing:

During the previous calendar quarter, the USPS provided a notice requiring the renegotiation of one of our important financial compensation arrangements. While we believe that this agreement is mutually beneficial to the USPS and to us, there is a risk that renegotiation is unsuccessful and leads to materially less-favorable terms or that the USPS decides to not renew one or more of these financial compensation arrangements. In such case, our revenue and operating results will be materially affected unless we are successful in timely replacing the lost revenue with similar compensation from other potential partners.

The post office may begin charging Stamps.com more money for the postage it resells, hurting the company's profits. It may even cancel "one or more" of Stamps.com's contracts, hurting profits even more. Stamps.com hopes this won't happen, but it still might, and this has investors worried.

Now what

Truth be told, we've known something like this was possible for some time. Back in April, for example, President Trump alleged (wrongly) that Amazon.com was taking advantage of the post office by getting its packages shipped for less than what it costs the post office to ship them. His suggestion that Amazon should be charged more got investors wondering if this might mean Stamps.com would be charged more as well -- and now Stamps.com seems to be confirming that it's at least a possibility.

For now, this hasn't happened. But it might -- and this worry is injecting a healthy bit of caution into Stamps.com's stock price today.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stamps.com. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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