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2HRS2GO: Stamps.com makes an impression

SAN FRANCISCO -- Help me. Please.

I can't control myself. I see dollar signs where I'd normally find just another wretched ink blot of wasted capital. Seductive voices ring in place of the usual sneers of dismissal.

The feeling can hardly be described. I like this company -- and it has no paying customers. I find myself wondering why it's not valued higher -- yet it already carries a market cap approaching $1.2 billion.

What has Stamps.com Inc. (Nasdaq: STMP) done to me?



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Yesterday's presentation for Volpe Brown Whelan & Co.'s annual Internet and Communications conference started innocently with yet another spiel about market leadership, first mover advantages, a huge (huge!) market opportunity, price advantages, Web convenience -- the cliches common to almost every e-commerce "business" model. Stamps.com CEO John Payne avoided mentioning profit whenever possible, thus cementing his status as a worthy Web executive.

Then he started on the differences between Stamps.com and the rest of the e-commerce mob:

People need it. Only a few e-tailers sell necessities. Postage is one.

Regulators protect it. You need the government's nod to sell stamps electronically. Only four companies are approved. Only two are actually doing it. Only Stamps.com requires no new hardware; its software works through whatever word-processing or contact management applications you already use.

Don't expect anyone in the near future to join the current quartet of the approved. Payne claims no one else is within two years from government approval, let alone closer. Those regulatory barriers "are really, really bad before you overcome the hurdle," Payne noted. "And they're really, really good after you overcome the hurdle."

Scotch tape Every e-commerce wannabe goes for marketing and distribution partnerships, but most involve another tech company or Web firm. Stamps.com has those, including a Microsoft Office tie-in whose announcement last month sent STMP shares shooting higher.

But Stamps.com also was smart enough to do something that seems obvious, yet often doesn't happen with Web merchants: hooking up with real world, physical companies. The number one use of Scotch tape is sealing envelopes, believe it or not. Guess which company has a deal with Stamps.com.

Can't help but love that kind of creativity.

No inventory. Payne didn't actually mention this, but it occurred to me anyway. Stamps, unlike books, computers, jewelry, food or almost anything else sold online, require no warehouses or distribution centers. No wonder Stamps.com ultimately expects margins of 80 percent, 30 percent and 20 percent from its gross, operating and net lines, respectively.

A colleague in the conference's press room tried to jolt me back to conventional sense. "Look at that!" she exclaimed while pointing to the "--" that fills the "revenue" portion of Stamps.com's financial statements. "How can they be worth $1.2 billion? They're just an idea!"

True, the company doesn't even have sales, let alone earnings. And at face value, revenue per customer seems thin, since Stamps.com's money will come from fees equivalent to just 10 percent of the value of postage ordered.

There it was. I was regaining my sense of well-being.

On the other hand, playing venture capitalist or even angel investor carries thrills of its own. Besides, Stamps.com has some semblence of clientele -- the company claims almost 100,000 pre-registrations for its service.

Uh oh. I was doing it again.

My colleague fired another round of common sense. "None of those people have given them any money yet."

Still, they're clearly interested. You'd be surprised how much postage small businesses can generate. Hell, my parents' 37-employee medical lab -- not exactly as mail-intensive of a business as, say, a retailer -- spends $800 a month on postage, not counting $350 a month for the Pitney Bowes meter. "If you can find someone cheaper, let me know," my mother says.

Eighty dollars (10 percent of $800) vs. $350? Hey mom, you might want to try this Stamps.com thing. Then again, you'd have to get comfortable with the Web, so maybe not. Just kidding. Sort of.

Pitney Bowes -- whose monopoly-like grip on the postage meter industry has lasted far longer than Microsoft's hold consumer operating systems -- plans an aggressive online push of its own. Just on name alone ("They're a staple of business," dear mother notes) Pitney might be able to maintain its huge real world share in the virtual realm.

Yet plans of Pitney Bowes remain just plans. You also have to question how hard the company will push to cannibalize a franchise that generates almost $5 billion annually.

Unhampered by such concerns, Stamps.com stands ready now. The company just upgraded its server capacity to 1.5 million simultaneous users, which explains the delay in Stamps.com's formal rollout originally scheduled for this week. At least it lessens the chances of an eBayish outage.

More important, the field is huge, just huge! $46 billion huge by at least one research firm's guess. That kind of size means Stamps.com doesn't have to grab a major share; its current valuation comes out to less than 2.5 percent of the market estimate cited in the previous sentence.

"$1.2 billion for a company with no revenue?!"

But ...

"There's no business yet!"

... We live in a relative market. After two and half years of public trading, Amazon shareholders have absolutely no idea when their company will even sniff a profit, yet that hasn't stopped them from pouring a $20 billion into its market capitalization.

"Well, yeah, that's true."

Uh oh, she's giving up on me. "I'm not trying talk you out of it. I'm just skeptical is all."

If only I could resist the idea of Stamps.com so well. Someone, anyone, pull me out of this before it starts a habit. Seriously.

Other conference notes:

  • eBay Inc.
  • (Nasdaq: EBAY) Sotheby's and Christie's -- you're next! Or so eBay's Steve Westly said in so many words.

    The leading online auctioneer's Great Collections website will start early next month, with a formal press conference launch scheduled Oct. 19, said Westly, eBay's vice-president of marketing and general manager of premium services. eBay Great Collections will feature the premium art and collectibles that form the heart of the poodle-and-limo auction house business.

    Will people buy Van Gogh paintings online? If it were just eBay, probably not; but the company has signed up several well known auction houses (such as Heritage Coin) as partners, in addition to having Butterfield & Butterfield as a subsidary already. Investors have to like the higher margins of the high end collectibles business.

    eBay is hitting the Big Two of real world auctions in other ways as well: the company has already hired one Christie's executive, and plans more hires from Sotheby's as well, Westly said.

  • CyberGold Inc.
  • (Nasdaq: CGLD) Money talks, media walks, the company declares. CyberGold -- that's as in publicly-owned CyberGold -- used its IPO quiet period as an excuse to kick reporters out of its presentation.

    As Larry Dignan likes to say, a quiet period doesn't equate to a silent period. Besides, according to SEC regulations, if you can say it to an institutional audience, you can say it to the rest of the world; in fact, SEC Chairman Arthur Levitt has said that if you reveal anything to fund managers, you have to let everyone else know about it. If a publicly-traded company has something so secret that it can't be widely disseminated, it shouldn't presenting at an investment conference in the first place.

    That's my idealistic side talking. Between you and me, I don't mind being booted because that reduces my workload, while giving me something to complain about.

  • Symantec Inc.
  • (Nasdaq: SYMC) CEO John Thompson deserves a good review as he approaches the six month mark. He has Symantec focused on one area -- content security -- rather than taking the scattershot approach of rival Network Associates. Symantec's recent results confirm the wisdom of Thompson's plan.

    The company remains happy with analyst estimates, Thompson said. Symantec expects 25 percent growth in revenues and profit before taxes. The recent acquisition of URLabs will hurt earnings slightly over the next six months, including dilution of 2 to 3 cents in the September quarter. "We expect it to be wildly accretive" next year, he said.

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