Why 2013 Could Be A Big Year For Constant Contact

Constant Contact (NASDAQ:CTCT) is a leading engagement marketing firm that helps small businesses create and grow customer relationships. The company’s stock suffered in 2012 dropping over 60% from a high of $31 to below $12. The drop can be attributed to the short-term costs associated with the acquisition of SinglePlatform and a slowdown in the growth of its customer base.

We expect that businesses will look for a cost effective way of marketing their products as the economy recovers. Small businesses are expected to embrace social media and email marketing in a big way to keep costs in check. ^[1] Constant Contact with its its portfolio of email marketing, social media marketing, local deals, digital storefront and online survey tools is well placed to guide them in the process. Below, we take a look at factors which we think will help the company grow in 2013.

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Large Potential In An Untapped Market

The National Economic Council estimates that almost 28 million small firms in the country are struggling with tight marketing budgets due to a persistently weak economy. ^[2] Constant Contact currently counts only slightly more than half a million small businesses as its customers. This leaves a large untapped market waiting to be captured. Social network based promotions are the new marketing success formula, and the company with its suite of affordable tools for email marketing, social media marketing, event marketing, local deals, digital storefronts, and online surveys should be able to significantly expand its customer base.

The company’s CEO, Ms. Gail Goodman noted that despite a slowdown in customer additions in Q3 2012, retention had improved. ^[3] The company maintains relationships with its customers through local seminars, personal coaching and product support. We expect that the word of mouth promotions and company’s penchant for providing customer friendly service to further increase the retention rate and support a growth in the number of customers.

SinglePlatform Provides A Unique Business Proposition

Constant Contact completed the acquisition of SinglePlatform last year for $65 million, plus a $5 million cash and equity earn out for employee retention, as well as another $30 million tied to revenue targets. ^[4] The acquisition helps Constant Contact provide its small and medium sized business (SMBs) customers a service specifically tailored to help them reach their own local markets better. It gives small businesses a single place to update their critical business information and delivers that information across its publishing partner network, as well as the business’s social media profiles, website, and mobile site. It has relationships with more than 100 publishers, including the top three business directory sites, the top three ratings and reviews sites, and dozens of other sites and apps that reach more than 200 million consumers per month. Its Digital Storefronts generated more than 100 million consumer views in 2012. The Washington Post, WhitePages, Infogroup, and Acxiom Corporation recently joined SinglePlatform’s publishing partner network. The recent members extend the reach of SinglePlatform beyond the current 200 million customers per month. ^[5]

The majority of small businesses are concerned about growing their visibility ^[6] and SinglePlatform provides SMBs an easy way of doing so. We expect Constant Contact to aggressively promote SinglePlatform to its half million customers which should have a positive impact on the Average Revenue Per User. ^[3] Cross marketing of Constant Contact’s service suite to approximately 10,000 SinglePlatform users should also have a positive impact on the Monthly Average Revenue. We currently estimate the Average Monthly Revenue Per Customer to be approximately $40 by the end of 2013.

Going Mobile Could Accelerate Growth For SMBs

Nearly 8% of the digital traffic in the U.S. comes from a mobile device. ^[7] With almost 65% of the U.S. population owning a smartphone of some kind, it is expected that more people will prefer a mobile device over a PC to go online. ^[8] As a result, mobile search is expected to continue its aggressive trend higher with Americans shopping by browsing hundreds of directories, web sites and mobile apps that provide local business info.

Constant Contact can help small business make the most of this trend by promoting the Event Check-In app and the SinglePlatform tool. SinglePlatform will make it easy for SMBs to distribute their information across the most popular apps and feature mobile-optimized websites. The restaurant category seems to have the lead on the front according to the following two data sets released by the company.

• 62% of SinglePlatform NYC storefront views (menus, products, services) in fall 2012 viewed on a mobile device.
• @SinglePlatform: top locations for viewing menus both online and on mobile devices include NYC, Chicago, San Francisco, DC, and LA. ^[9]

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).

We have a $17 estimate for Constant Contact, which is at 15% premium to the current market price.

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1. The State of Small Business In 2013, AWeber, January 2013 [↩]
2. Moving America’s Small Business And Entrepreneurs Forward, Small Businesses Administration, May 2012 [↩]
3. Constant Contact Management Discusses Q3 2012 Results – Earnings Call Transcript, Seeking Alpha, October 2012 [↩] [↩]
4. Constant Contact Acquires Digital Storefront™ Provider SinglePlatform, Constant Contact, June 2012 [↩]
5. Four Major New Publishers Join SinglePlatform Publishing Network, Constant Contact, January 2013 [↩]
6. Small Business Pulse Survey, Constant Contact, May 2012 [↩]
7. Mobile Web  Traffic, Go-Globe.com [↩]
8. m-Commerce Statistics And Trends, Go-Globe.com [↩]
9. Constant Contact Pinpoints Five Marketing Trends That Will Impact Small Business in 2013, Constant Contact, November 2012 [↩]