This phenomenon tookshares of
Facebook (Nasdaq: FB)
down as much as 8% on 2012 fourth-quarterearnings , because the
company has not been able to break into the space. It is the reason
why Michael Dell intends to buy back the company he founded and why
have plummeted 40% during the past year.
I'm talking about the massive shift to mobile computing and,
more specifically, how to makemoney from it.
Indeed, mobile computing represents a secular change in
technology and those late to the party may not be around much
longer. Research firm Gartner Inc. expects that about 821 million
smart devices (smartphones and tablets) were sold in 2012. This
numberwill easily hit the billion mark this year and grow steadily
in the next few years.
"In 2016, two-thirds of the mobile workforce will own a
smartphone, and 40 percent of the workforce will be mobile," said
Gartner's Research Vice President Carolina Milanesi.
In just two years, mobile computing is expected to be a $330
billionmarket , according to consultancy firm Clearwater.
It's no wonder why everyone wants a piece of this pie.
The problem is, no one really knows how to get there. Facebook
for example, even though mobilerevenue increased to 23% of total
sales on its 2012 fourth quarter, it still disappointedanalysts .
And as I've noted earlier, thestock plummeted. Chinese search giant
Baidu (Nasdaq: BIDU)
-- the Facebook of China -- dropped 10% on Feb. 5 on its inability
to move into the space without incurring steep transition
When mega-cap companies aren't able to break into a
technological shift and shares start to tumble, I look to the more
flexible and innovative small caps leading the charge. These
startups often hold the proprietary technology andpatent rights to
the software that will either give them explosive growth or make
them takeover targets of the big players.
When it comes to monetizing mobile technology, there is one
company putting everything together.
One of the fastest-growing software companies in the
Last year, Software Magazine named this company one of the
fastest-growing software firms in the world. It grew revenue by 55%
in 2011 to $207.6 million and is expected to reach $287.5 million
By 2016, revenue could reach $1.6 billion on conservative
projections formarket share and growth in mobile advertising. The
meteoric growth in revenue is built on two underlying advantages
this company has over its competitors: Proprietary technology and
the ability to integrate advertising campaigns for clients
acrossmultiple channels including email, mobile, social media and,
of course, the Web.
is leading the industry into interactive marketing across different
channels, especially on smartphones through its proprietary
applications MobileConnect and MobilePush. These mobile
applications enable clients to create, automate, deliver and
optimize the performance of personalized inbound and outbound
While competitors and the likes of Facebook and Baidu are
struggling tomonetize traffic on the mobile Web, ExactTarget has
figured out how to do it across multiple delivery methods. This
means advertisers see a more integrated and efficient return on
their ad spending. Through its software, the company helped a
client increase on-hold purchase recovery by 50% through a
personalized campaign targeting customers that did not complete
their orders through the website's shopping cart. The company's
MobilePush application is the industry's first to enable marketers
to integrate in-app messaging across email, SMS, social media and
ExactTarget receives most of its revenue (81%) domestically,
though international revenue is growing at a faster rate and is
expected to increase dramatically in the future.
Triple-digit growth in online advertising and a 140%upside
The global market for online advertising in email, mobile and
social interactive marketing could reach $55 billion by 2016,
according toCredit Suisse. This represents an increase of 414% from
the $10.7 billion reached in 2011.
ExactTarget currently holds about 2.9% of the global market for
cross-channel interactive marketing. At an estimated $55 billion in
2016, this represents revenue of $1.6 billion, or 454% compared
with the projected $287.6 million 2012 revenue. Assuming the
sector's averagenet margin of 5%, this translates to earnings of
$1.18 per share and a stock price of $53.10 at a trailing
price-to-earnings (P/E ) ratio of 45. This is a gain of 140% from
Investors may not have to wait for the rest of the market to
catch on to this growth story. The company's small $1.5
billionmarket cap and proprietary technology positioned in the
fast-growing segment of mobile advertising could very well make it
an attractivetakeover target . Shares jumped 6.8% in December 2012
Oracle (Nasdaq: ORCL)
announced the takeover of competitor
Eloqua (Nasdaq: ELOQ)
for $23.50 a share, a 31% premium on the pre-announcement
Risks to Consider:
As a small-cap company yet to be profitable, the shares are
bound to be volatile. Investors need to be ready for large swings
in the price.
Action to Take -->
ExactTarget is on the forefront of the industry's future with
revenue growing at a double-digit pace annually. Earnings should
catch up quickly to the stock's valuation and theinvestment could
easily double in the next few years.