Endurance Making Inroads Getting Small Biz On The Web

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Endurance International Group Holdings ( EIGI ) is keenly aware of the biggest challenge that its clients face: coming up with a coherent online marketing strategy.

The company, based in Burlington, Mass., provides cloud-based platform solutions designed to help small and midsize businesses, or SMBs, succeed online. Many of these businesses have little money to spare on marketing and little expertise to do it themselves.

Endurance recently surveyed 491 very small business (VSB) subscribers within the total Endurance subscriber base and found that most of them struggle with even the most basic element of effective marketing -- designing impactful logos. Fifteen percent have no logo at all.

A poll by online marketing firm Yodle supports these findings; it says that many small businesses still don't use modern technology. Less than half even have a website.

Yet studies show that 90% of all consumers prefer shopping and doing other transactions online. So these small businesses miss out on potential customers.

Selling Convenience

Endurance CEO Hari Ravichandran says that his firm is well-positioned to get these small businesses on board.

Its suite of 150 products and services includes Web presence and mobile sites, email and e-commerce solutions, plus more advanced offerings such as SEO services, scalable computing, security, storage, backup and marketing.

The firm's subscriber base of more than 3.7 million includes many businesses with fewer than 10 employees and often fewer than five.

"Most don't have an IT department, so it's a lot more convenient and cost-effective for them to come to us and tell us what they need," Ravichandran told IBD.

Endurance offers value not only in pricing but also in customer service. Clients have access to an IT staff and support department 24/7, 365 days a week.

In the case of logos, for example, Endurance offers Mojo Marketplace tools to "help deliver professional logos and graphics at any budget," Michael Kesselman, the company's executive vice president of innovation and strategy, said in a statement.

Endurance serves its customers with a family of brands that includes Bluehost, HostGator, Domain.com, FatCow, iPage and BigRock. The company has a presence in the Americas as well as in Asia, and employs more than 2,600 workers.

Endurance attracts clients by first offering the essentials, which might include a domain name, a Web presence and a few basic services.

The cost is minimal -- in the range of $6 or $7 a month. It's even less when promotions are available, Ravichandran says.

Once on board, subscribers typically see a sales uptick and begin exploring options to expand their online presence. As business grows, Ravichandran says, so do online needs.

That's when Endurance boosts its offerings.

The company's strategy focuses on "upselling the installed base," analyst Gregg Moskowitz of Cowen noted in a report.

That strategy should result in a jump in average revenue per subscriber ( ARPS ), he says. ARPS stood at $14.33 per month at the end of the second quarter, up from $13.01 a year earlier.

Ravichandran says that ARPS could grow to $20-$25 per month in the next three to five years.

On Thursday, Endurance reported second-quarter adjusted revenue of $159 million, above consensus estimates as well as the company's own guidance.

Top-line results were helped by the addition of more than 93,000 net paying subscribers. EPS came in at 25 cents excluding special items.

The company's stock price rose 11% to 14.39 intraday on Thursday before closing up more than 9% to 14.15. However, shares fell back some in midday trading Friday.

Endurance had its initial public offering last October at an opening price of 12. It has mostly stayed away from mergers and acquisitions in its first year as a publicly traded company so it could focus on organic growth.

However, Ravichandran says that Endurance is again on the hunt for opportunities.

Analyst Moskowitz notes that Endurance has a "strong track record of acquiring attractive brands, integrating them with EIGI's online platform (while retaining the brand identity) and driving meaningfully greater uptake than those companies had been able to do independently."

He expects to see a "resumption of the M&A playbook" during the latter half of the year.

Meanwhile, Endurance stands to benefit from an improving economy in which small businesses feel more confident spending on infrastructure.

More small businesses are considering online marketing solutions as a viable and useful option, Ravichandran says. As an example, he points to the driver of a car service he's used for six years who recently expanded his operations online.

"(The driver) always gave me a business card," Ravichandran said. "Now he still gives me a business card but there's also a link to his Facebook page on it."

Through his Facebook page, the driver can offer coupons and special rates during slow business hours -- and reach thousands of potential customers quickly.

Learning Experience

In the third quarter, Endurance also plans to launch a social networking offering that links its subscribers.

"We're trying to build something that allows subscribers to learn from each other," Ravichandran said.

Other tech companies also are focusing on their Web presence business, which might mean more competition for Endurance.

Google ( GOOGL ) recently launched a beta version of its domain registration initiative, called Google Domains. Endurance's stock fell 6% on the news, but analysts quickly pointed out that there was little to worry about.

Google is not offering hosting or other adjacent services itself, according to a report from Jefferies analysts: "We believe Google Domains competes more directly with primarily registrar businesses rather than primarily hosting businesses such as EIGI."

In fact, Endurance already partners with Google through its "Get Your Business Online" initiative in the U.S. and India.

"Over time, Google potentially could also end up including Endurance as a web presence partner through the Google Domains initiative, as Google is interested primarily in SMB ad dollars and not the hosting business itself," the Jefferies report said.



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: EIGI , ARPS , GOOGL

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