Scratching Web 2.0 Opportunities

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Over the last few years, Social Media as a platform for mutual interaction has gained respect among the consumers as well as the brands. A recent article Social Media revenue forecasts by Gartner highlighted the importance of Social Media in the near future. It forecasts that  Social Media revenue is expected to reach ~$16.9 billion in 2012, up by an impressive ~43% year over year. With its ever rising popularity, even small businesses are embracing Social Media marketing as an important tool to increase their customer base.

Constant Contact (NASDAQ: CTCT) 
is a well known name in the field of email marketing and event marketing for SME's. The company has made a big name for itself in the last few years with a large following in the small business segment. Now, by focusing on Social Media, the company is in a transition phase from just an email marketing provider to a multichannel marketing vendor. To achieve this objective it launched a new product called Social Campaigns.

Social Campaigns

Under its transitional phase, Constant Contact is continuously expanding its products line from email marketing to events marketing, surveys, and most recently Social Media campaigns. With the increasing shift towards social networking as a business platform, small businesses are also recognizing the need of these channels to attract new customers. To meet this end, Constant Contact launched a social media product called 'Social Campaigns' in 1Q12, and as of 2Q12 it had 60,000 users and ~2,000 paying customers. This campaign is in various formats, such as videos, weekly specials, events, coupons, etc. Also, the pricing of SC is higher than traditional email marketing; therefore the company expects it to contribute substantially to its ARPU (Average Revenue per User) in 2Q 2012.

Let us have a look at two of its competitors in the industry - 

<table> <tbody> <tr> <td> <p><strong>Company</strong></p> </td> <td> <p><strong>Qtrly Revenue Growth (y/y)</strong></p> </td> <td> <p><strong>Operating Margin (ttm)</strong></p> </td> </tr> <tr> <td> <p>Constant Contact </p> </td> <td> <p>18%</p> </td> <td> <p>3%</p> </td> </tr> <tr> <td> <p>Groupon, Inc. <span class="ticker" data-id="255351">(NASDAQ: <a href="">GRPN</a>)</span></p> </td> <td> <p>32%</p> </td> <td> <p>4%</p> </td> </tr> <tr> <td> <p>Responsys, Inc <span class="ticker" data-id="225220">(NASDAQ: <a href="">MKTG</a>)</span></p> </td> <td> <p>20%</p> </td> <td> <p>6%</p> </td> </tr> </tbody> </table>

Source: Yahoo! Finance

Constant Contact has its own deal service known as 'SaveLocal,' which brings the benefits of online deal promotion with heavy discounts. Under this segment the company competes with Groupon, which is the main resort for all deal seekers. Groupon is transforming itself from a growth-oriented company into a reasonable public company. Its stock price has seen a big drop of ~85% since its IPO in Nov. 2011. However, its long-term growth factors are still undamaged, which makes me feel positive about this stock. With the speedy growth in the mobile space, the company saw an increase of ~30% year over year in its mobile transactions in North America. To further enhance this opportunity, Groupon entered into a partnership with Nokia wherein its customers can look at the offers and buy things from their phones, and get the directions as well. The app is initially available in the US for the Nokia Lumia users. I see this as a wise step by the company to expand its presence into the mobile segment.

Another competitor to Constant Contact's various services is Responsys, which is the leading provider of email and cross channel marketing solutions. It recently posted strong 3Q 2012 results with its revenue up by ~20% year over year to $40.5 million. To maximize its return during the last holiday season Responsys launched a '2012 Retail Email Guide to the Holiday Season' which helped the companies to increase their revenues from email and digital campaigns. In 2012 the volume of promotional emails has already increased by ~20%, showing the significance of this traditional channel. The company will leverage this opportunity to further increase its profits in its 4Q 2012. The company also recently expanded in Japan to strengthen its operations in the APAC region. The company will work with Home's, Next Co Ltd, and Coach to develop its digital marketing programs.

But, in spite of all these points, among the above mentioned three companies I feel more confident about Constant Contact, as it is in its growing stage and is all set to transform its business. Let us have a look at its other growth factors.

Acquisition of SinglePlatform

The most important turnaround factor to look for Constant Contact is its acquisition of SinglePlatform. It acquired this Digital Storefront provider, which helps small businesses to list themselves online, for $63 million. This acquisition generates a lot of synergy for both the companies as they complement each other’s business. Under this acquisition, Constant Contact will use SinglePlatform’s partners to help small businesses to create their listings for free. On the other hand, SinglePlatform will offer its paid Digital Storefront product for adding further content such as photos, pricing, etc to listings. Constant Contact expects this deal to contribute $1 million in its total revenue for the full year 2012 and $10 million in 2013. I think this deal will help enhance the customer base for Constant Contact, and also will be helpful with higher generation of revenue.

The company recently posted its 3Q 2012 results, in which revenue climbed by ~17% year over year to ~$63.8 million. It added 35,000 new customers in this quarter, bringing the total to 540,000 customers. However, even then its stock price didn't react fairly and witnessed a decline of ~26% immediately after the announcement of its results. But even now the company is highly optimistic about its Social Campaigns product, which will increase its existing base of customers. Also, the company is expecting a revenue growth of ~20% higher than the consensus growth projections of ~17% in 2013. Until now, the company has always been known for its email marketing solutions, which will now be accompanied by its Social Media solutions. Looking at all these aspects, I recommend buying this stock.

ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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