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 April 4, 2011

 Student Investment Fund
 Zach Friedland


¢ stamps.com Inc. provides Internet-based postage solutions to small businesses and individuals primarily in the U.S.

¢ Primarily recurring revenue based model ± service fees, supplies store, package insurance
¢ PC Postage Service (86% of Revenue) ± USPSapprovedservice that enables users to print electronic stamps directly onto envelopes, plain paper, or
labels using personal computer, printer, and Internet connection
¢ Monthly subscription service fee ($15.99-$39.99 depending on package) plus cost of postage
¢ No special hardware required and fully integrated with MS Office
¢ Provides customers with time savings (ship from home or office, avoid trips to post office) and cost savings (discounted postage rates,
calculates exact postage, optimizes mail classes ± entry level meter costs $50-90 per month (pre-postage) vs. as low as $16 for stamps.com)
¢ Stamps.com has over 80% of all PC Postage subscription customers
¢ 340k customers at end of 2010 (up from 320k in 2009, 311k in 2008, 293k in 2007 and 258k in 2006)
¢ Avg. Monthly Subscriber Revenue $18.9 (up from $18.1 in 2009)
¢ PhotoStamps (8.4% of Revenue) ± allows consumers to turn digital photos, designs, or images into valid U.S. postage
¢ Typically tend to be one-off orders for a wedding, birth, etc. Pricing is $5-10 per sheet plus postage
¢ Made strategic decision in µ07 to shift away from this business and focus on PC Postage (higher margin & ROI w/ recurring revenue model)
¢ Launched partnership with Amazon in 2010 ±Shipping labels are printed as part of a seamless integrated process flow and both domestic and
international mail classes are supported. Postage is paid for using the user¶s Marketplace Payments account
¢ Strong patent portfolio with over 120 patents issued

¢ ~$67 billion USPS Revenue (Stamps.com target: ~$50 billion U.S. postage market (stamps.com has ~2.0% market share))
¢ Significant barriers to entry - Postal Service regulatory approval process is long and complex and requires ~2 ½ years for initial approval. The last PC
Postage vendor approved by the USPS was in the year 2000, and only 3 approved PC Postage vendors exist (Stamps, Pitney Bowes, Endicia.com)

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Pitney Bow es Inc. (PBI) $5,226.6 $5,425.3 1.7x 8.2x 11.2x 

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OpenTable, Inc. (OPEN) 2,492.4 99.0 24.8x 101.8x 97.7x Ñ

Vocus Inc. (VOCS) 510.7 96.8 4.2x 272.8x 35.9x
TechTarget, Inc. (NasdaqGM:TTGT) 332.0 95.0 3.0x 32.0x 25.3x
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Keynote Systems Inc. (KEYN) 282.2 84.0 2.5x 22.1x 20.4x
MediaMind Tech Inc. (MDMD) 256.0 80.8 2.0x 10.6x 20.7x

  

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c*#+ ¢ Large market opportunity ± ability to capture share of U.S. postage market (45 million small businesses)
 ¢ NFIB Small Business Optimism Report is improving. ADP Small Business Report indicates hiring increases in small business sector for 5
consecutive months
¢ Significant barriers to entry ± USPS approval process and intellectual property
¢ Growth opportunities ± plans to increase marketing spend 5-10% to target corporate enterprise customers and high volume shippers
¢ Attractive business model ± high gross margins (PC postage=78%), variable cost structure with leverageable fixed costs, and significant free cash
flow generator (low working capital and capex requirements - $17.9 million FCF in 2010)
¢ Shareholder friendly management team (and BOD) ± Stamps.com has returned $253 million of excess cash to shareholders since 2002
¢ ~$107 million via special dividends (Paid $2 special dividend in Q4¶10 ($28.9 million cash))
¢ ~$146 million in share repurchases (Company reduced shares outstanding by 45%) (board authorized add¶l buyback of up to 1 million
shares (~7% of outstanding) over next six months
¢ Strong balance sheet - $35 million in cash and equivalents with no debt
¢ $226 million Federal and $148 million State NOL¶s
,+ ¢ Secular decline of paper mail industry - Mail business is cyclical, so it not necessarily in secular decline. Historically there has been a rebound in mail
# volume after every recession. Mail will move increasingly to digital, however the tail is long
¢ Reliance on USPS ± USPS can change policies
¢ Churn ± pre-recession churn ranged from 2-3%. Churn spiked to ~4% and has come down to the ~3.4% level. Mgmt hopes will return to pre-
recession levels
¢ Competitors have significantly more marketing dollars and different pricing/service models
¢ Seasonality can influence EPS ± Q4 and Q1 tend to be stronger
¢ Litigation with Endicia ± two IP and patent related cases create uncertainty and cash-burn with lawyer fees

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