Slowing Customer Growth A Worry For Constant Contact

by Trefis Team
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Constant Contact
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Constant Contact (NASDAQ:CTCT) announced its earnings for Q3 2012 on October 25th, with revenues increasing to $64 million, up 17% year-over-year. It was able to maintain its relatively high gross margin at around 71% and added nearly 35,000 gross new customers during the quarter. During the quarter, the company re-branded and relaunched its event management product, Event Spot, which will continue to focus on small businesses, non-profits and associations.

Constant Contact offers a complete set of online marketing tools, including email, event, social media and mobile marketing, and competes with the likes of Groupon (NASDAQ:GRPN), Living Social, Eventbrite, iContact, Surveymonkey as well as Salesforce.com (NASDAQ:CRM).

Check out our complete coverage of Constant Contact

Customer base growth

The company ended the quarter with 540,000 customers, adding 35,000 new customers. The growth was lower than its expectations of 45,000 new customers as in the previous quarter. The shortfall originated from the email side of the business, and the company believes that the lack of execution in converting trials to paying customers is the cause behind it. While expanding its product suite and re-jigging the organization structure to stay efficient at the same time, it hopes to turnaround in the next quarter.

The recently acquired SinglePlatform tool added 3,000 new customers in the quarter, about half of which were new customers for the company. While this is representative of the effectiveness of the company’s cross selling initiatives, it also represents its incapability in capitalizing on the new acquisition to drive user growth. It attributed the failure in part to the poor performance of enterprise part of the tool’s selling model. The company hopes that its recent sales and marketing team hires would be more productive in the coming quarter and help it return the user base growth to historical levels.

ARPU growth

The company has been able to make up for poor user-base growth with good ARPU growth, thanks to its cross selling initiatives. Also, the recently launched tools are improving their free to pay conversion rate with the Social Campaigns tool reporting a conversion of 4% during the quarter. Better monetization of its user base can be partly credited for the improved margins during the quarter. The monthly ARPU grew to $40.35 during the quarter, up $2.40 from the same period, last year.

We have a $30 estimate for Constant Contact, which is being revised.

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