Stamps.com warns of even more pain ahead after it ditched the Post Office. Stock plunges 50%

The company's stock plunged about 50% in early trading Thursday after the mailing and shipping company slashed its revenue and earnings guidance.

Even before the latest warning, shares of Stamps.com (STMP) had already lost more than half their value after it announced in February that it was ending its exclusive partnership with the US Postal Service. That deal had been the core of its business, but the company said it needed to diversify to other carriers to take into account the changing marketplace.

The latest plunge left shares down nearly 80% since the USPS partnership ended.

Stamps.com warned at the time there would be "some short-term pain for us over the next few years." The latest warning, issued after the market close Wednesday as part of its earnings report, showed that pain was worse than feared.

CEO Kenneth McBride said it was the result of the USPS renegotiating agreements it has with many of Stamps.com's own customers.

Those customers buy postage from the USPS at a negotiated lower rate, and then resell that postage at a higher, but still discounted, price. Many of those using the discounted postage are small- and medium-size businesses that are shipping goods that had been purchased online. Stamps.com benefited from the success of those various resellers' contracts with the USPS, said McBride.

"We believe that it's reasonably likely that margins earned by resellers as a result of these negotiations will begin to decrease starting around the second half of 2019 and may continue to decrease in 2020 and 2021," said McBride. "With a less attractive revenue share, we believe many of these [customers] are going to shift their focus to other carriers."

Stamps.com stock plummets more than 50% after it ends partnership with the US Postal Service

Because of those expected declines in the customers' business, Stamps.com cut its revenue for this year by between $10 million to $30 million. It now expects profits to fall between $24 million and $34 million.

McBride said the more negative outlook is "an example of why we feel so strongly that the actions we took last quarter to diversify our carrier relationships away from our USPS-centric model were absolutely the right business decision."

But the warning about the drop in revenue and profits sparked investors' selloff.

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