Of all of Cliff Clavin’s goofy predictions, the one about the future of e-mail may just take the cake.
After a lifetime spent delivering the physical mail, Cliff dismissed the electronic version entirely, predicting:
The computer’s going to be dead in about 5 years, anyway. The Post Office will rise again, my friend, will rise again.
That was almost ten years ago.
Since then, things have gone downhill for the Cliff Clavins of the world — along with their venerated United States Postal Service (USPS).
Like the guys that delivered the milk before them, history is in the process of leaving them all in the dustbin. Competition has that effect.
In fact according to a report issued by the Government Accountability Office last year, first-class mail has declined 19 percent since 2001 and will continue to sink by 37 percent over the next decade.
Likewise, standard mail delivery has dropped by 20 percent since 2007 as electronic bill pay and other forms of communication eliminate the need to buy rolls of stamps.
As a result, lower mail volume has meant lower revenues needed to support the commitment to deliver the mail six days a week.
A Broken Business Model
That has put a serious crimp in the Postal Service’s business model — a monopoly that’s the second largest employer in the country, second only to Wal-Mart.
But unlike like Wal-Mart, the USPS is bleeding some serious red ink.
The USPS lost a mammoth $8.5 billion in 2010, while it’s projecting a $6.4 billion loss this year. Additionally, the USPS is also nearly $7 billion in the hole on the funds necessary to cover the promised health care benefits for its 596,000 employees, and also expects to max out its $15 billion federal line of credit by the fall.
A bailout in this case looms large.
In the meantime, the Postal Service is closing as many as 2,000 post offices, cutting 7500 managers, and looking to end Saturday delivery as mail volume fails to cover the costs.
“It’s critical that we adjust our work force to match America’s changing communication trends, as mail volumes continue to decline,” says U.S. Postmaster General Patrick Donahoe.
“At every step and with every change, our focus remains on our customers and continuing to provide outstanding customer service.”
Of course, that point is debatable, as anyone who has been to their local Post Office recently surely knows…
I was reminded of that on my last visit in January. Two postal clerks worked with the urgency of molasses headed down the hill as the line stretched out the door.
For investors, that means shares of both FedEx (NYSE: FDX) and UPS (NYSE:UPS) will continue to grow as the Postal Service gives up more market share.
In fact over the course of the last ten years, FedEx has grown at a compound annual growth rate of 5.9%, while UPS grew at 3.7%.
I would expect this to continue — even in the face of higher oil prices. Things that have to be shipped will be shipped, regardless of increases in price.
Making Money Every Time a Client Hits the Send Button
Another way to invest in this trend is through the companies that are helping businesses maximize their e-mail efforts as they transition away from the regular mail and market themselves in a whole new ball game.
That’s one of the reasons I like Digital River Inc. (NYSE: DRIV), a global e-commerce and marketing leader.
With its acquisition of BlueHornet Networks in 2004, Digital River gained an e-mail marketing system that’s a valuable tool clients use to target high-value customers while generating sales for their online stores.
As the #1 e-mail service provider, BlueHornet currently helps thousands of businesses manage their e-mail campaigns, charging first for service, then a fee per each e-mail.
Like using an electronic stamp, Digital River’s revenues grow every time a client hits the send button.
But that’s not the only reason to like Digital River…
Aside from their e-mail business, the company is a big e-commerce player that handles 300,000 orders a day from 180 countries totaling $8 billion a year.
The company’s clients include Adobe, Electronic Arts, Kodak, and Microsoft among the tens of thousands of businesses they serve.
That puts them in a perfect position for continued growth since, according to the Commerce Department, e-commerce sales grew 14.8% last year to $165.4 billion…
That trend will undoubtedly continue as more and more business is conducted online.
And that leaves Digital River as a buy in my book, especially as it begins to clear overhead resistance. Take a look:
As for the Post Office, I think it was actually Lee Iacocca who had it right when he said:
One of the things government can’t do is run anything. The only things our government runs are the post office and the railroads, and both of them are bankrupt.
I hate to say it… but truer words were never spoken.
Your bargain-hunting analyst,
Steve Christ
Editor, Wealth Daily
