- Company Name
- Stamps.com, Inc.
- Stock Symbol
- Class Period
- May 3, 2017 to February 21, 2019
- Motion Deadline
- April 29, 2019
- Central District of California
The complaint charges Stamps.com and certain of its officers with violations of the Securities Exchange Act of 1934. Stamps.com is a provider of Internet-based mailing and shipping solutions in the United States and Europe through its shipping relationship with the United States Postal Service (the “USPS”). Under the Stamps.com and Endicia brands, Stamps.com customers receive discounts to use the Company’s USPS-only products by printing “electronic postage” directly onto envelopes, plain paper, or labels using a standard personal computer, printer, and Internet connection. The USPS accounts for approximately 87% of Stamps.com’s earnings.
Under its relationship with the USPS, Stamps.com had a license to buy postage at far cheaper than advertised rates and resell the postage at a hefty markup (though still below market price). This “reselling” market was dominated by Stamps.com, which had an understanding with the USPS that it would only offer these discounted rates to larger companies that could buy postage in bulk.
The complaint alleges that during the Class Period, defendants made false and misleading statements and/or failed to disclose adverse information regarding the Company’s business and prospects. Specifically, defendants falsely touted the Company’s purported strong financial results and relationship with the USPS without disclosing that the Company’s financial results depended on the manipulation of its “reseller” program with the USPS, and that, as a consequence, the Company’s business was unsustainable and its financial results were highly misleading. As a result of this information being withheld from the market, the price of Stamps.com stock was artificially inflated during the Class Period to more than $275 per share.
Then on February 21, 2019, after the market closed, Stamps.com held a conference call to discuss its fourth quarter and fiscal year 2018 financial results. On the call, Stamps.com’s CEO stated that the Company had “decided to discontinue [its] shipping partnership with the USPS so that [it] could fully embrace partnerships with other carriers who . . . will be well positioned to win in a shipping business in the next five years.” The Company further announced that, contrary to previous expectation of strong growth, 2019 revenue was expected to decline 5.4%. On this news, the price of Stamps.com stock fell over 57%, from $198.08 per share to $83.65 per share.
On February 26, 2019, it was reported that, contrary to the representations made in the February 21, 2019 conference call, the USPS had decided to terminate its relationship with Stamps.com in the face of increasing demands and abuse of the reseller program. According to media reports, instead of offering discounts to larger companies pursuant to its agreement with the USPS, Stamps.com “did the exact opposite, offering small companies and organizations the same rates that larger companies were given. . . . All of this duplication and unsustainable pricing meant that record profits accrued by Stamps.com resulted in record losses” for the USPS, costing the “agency at least $235 million per year in shipping irregularities and mispaid postage. . . . But even this sweetheart deal wasn’t enough for Stamps.com. They then insisted that the Postal Service keep the cheap postage pipeline open and allow the company to work with other shippers. That led USPS officials to finally terminate the partnership.”