E-Stamp said Monday that it was shuttering its online postage business and laying off one-third of its staff, saying that high operating expenses made it impossible to make a go of it.
E-Stamp (Nasdaq: ESTM) shares closed up 13 cents to 41 cents ahead of the announcement.
Company officials said it plans to remain in operation but overhaul its business model to one focused on automating many back-end office processes.
It will continue to offer its postage service through the holiday season, but stopped shipping out new starter kits last Friday.
"I personally think this will at some time be a sustainable business,'' CEO Robert Ewald told Reuters. "It's just going to take longer than anyone ever imagined."
Ewald said that while the E-Stamp business had been adopted by many small businesses since it was launched 15 months ago, other potential customers found it was not cost-effective.
"The Postal Service set the rules and the prices and they said that any fee we charged had to be on top of the official stamp price.''
E-Stamp typically charged 10 percent more than the price of a regular stamp. The company had argued it saved the Postal Service as much as 11 cents per 33 cent stamp in operating costs, and had hoped to eventually win approval to sell stamps at below the official rate.
Yet some critics of the business felt that E-Stamp offered little value since small businesses usually have postage machines in their offices.
In its latest quarter, E-Stamp posted a loss of $18.9 million, or 50 cents a share, on sales of only $1.8 million.
The stock peaked at $40.38 in December before falling to a low of 28 cents earlier this month.
Reuters contributed to this report.