Can Constant Contact Grow Business Marketing Online?

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After spending much of last year coping with growing pains, e-mail marketing firmConstant Contact ( CTCT ) has returned to the kind of robust financial performance it used to crank out with regularity.

The company provides on-demand email marketing, social media marketing, event marketing and online survey products to small businesses and other organizations. Roughly 70% of its customers have fewer than 10 employees.

Constant Contact 's tools are used in a variety of ways, all with the purpose of helping customers raise brand awareness and collect and analyze information.

Its email marketing products let customers create, send and track email marketing campaigns, while its social media products let customers create, publish, promote and run campaigns onFacebook ( FB ).

Customers can use Constant Contact's event-marketing product to promote and manage events, track event registrations and collect online payments. With its online survey product, they can make and send surveys and analyze the responses. Constant Contact also offers SaveLocal, a product designed to help customers create, run and manage local deals.

Features Vs. Focus

It wasn't so long ago that the company focused almost exclusively on email marketing products. But last year it expanded its suite with the purpose of becoming a multiproduct company.

The initiative broadened Constant Contact's customer base and helped the company become more competitive against rivals such as MailChimp, MyEmma andVocus ' ( VOCS ) iContact.

But it also took Constant Contact's focus off its core email products, which in turn hurt the company's financial returns.

Constant Contact reported lower earnings four quarters in a row from June 2012 through March 2013. It reported a 21% dip in full-year profit in 2012 -- the first time it has reported lower yearly earnings since going public in October 2007.

"They lost focus on their flagship product," said Jeff Houston, an analyst at Barrington Research. "Their customer retention rates fell and their conversion rates fell, too. They had too much going on."

But Constant Contact has righted its ship this year. The company posted year-over-year earnings growth of 9% during the second quarter and 45% during the third.

On an Oct. 24 conference call with analysts to discuss the Q3 results, Constant Contact Chief Executive Gail Goodman said the company's decision to expand its product suite was necessary to meet market demands.

"Small businesses, much like larger organizations, are starting to realize there is no one campaign type or channel to reach all of their customers and prospects," she said. "They're increasingly turning to multiple marketing campaigns launched to all channels to reach and engage them. Email, social media and mobile are no longer separate ideas."

Constant Contact continues to add new products this year, although on a smaller level.

Marketing Goes Mobile

Through the third quarter, it had launched six new mobile applications in 2013 to help customers use its EventSpot, SaveLocal and MyLibrary products from their smartphones and tablets. Each app is available for devices runningGoogle 's ( GOOG ) Android operating system as well asApple 's ( AAPL ) iOS.

"We've also been working in the last few months on improvements to our QuickView mobile email marketing app, adding in new templates that help customers create and send newsletters right from their iPhone or iPad," Goodman said.

Meanwhile, Constant Contact has worked to get its name in front of more people by signing strategic partnerships with high-profile firms. During the third quarter it struck a deal with office retailerStaples (SPLS) to host online marketing workshops in select Staples stores, for example.

In October, Constant Contact announced the launch of a new program withMicrosoft (MSFT) to provide best practices in online marketing in Microsoft retail stores across North America.

Financially, Constant Contact is coming off its best quarter in a year-and-a-half. It logged Q3 earnings of 29 cents a share, up from 20 cents a year earlier and a nickel above consensus views.

Revenue for the quarter gained 13% to $72 million, in line with estimates. The company's average monthly revenue per user (ARPU) climbed 4% to $42.13. Constant Contact also recorded a drop in its cost to acquire customers and an increase in its average customer life.

It was the second straight quarter that Constant Contact's customer lifetime value metrics improved, analyst Houston said. These metrics include ARPU, retention rates, growth margins and cost of acquiring customers.

"Prior to last quarter its customer lifetime value declined for two years," Houston said.

Constant Contact shares touched an 18-month high of 29.71 on Oct. 25 and currently trade near 28. Analysts expect the company to grow full-year earnings 30% in 2013 and 29% in 2014.

One wild card for Constant Contact is how long it will stay an independent firm. It is frequently mentioned as prime bait for a buyout.

"There have been a lot of acquisitions of other marketing technology companies, so they're certainly an acquisition candidate," Houston said.

One potential suitor is business and financial software makerIntuit (INTU), he says.Salesforce.com (CRM), which might have been a logical candidate earlier in the year, is no longer considered a likely suitor because of its buyout this summer of ExactTarget, a cloud marketing platform.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AAPL , CTCT , FB , GOOG , VOCS

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