User Base Growth In Focus Ahead Of Constant Contact’s Earnings

by Trefis Team
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Constant Contact (NASDAQ:CTCT) helps more than half a million small organizations worldwide connect with their customers through a suite of online engagement marketing tools. The company will announce its earnings for the fiscal year 2012 on January 31st. The company had reported in October that revenues from the first nine months of the year had increased by 18% to $186 million.

Last year the company launched new products in the social marketing domain, re-branded its event marketing service and acquired a new business SinglePlaform. It also introduced its own local deals service, SaveLocal. It was expected that these initiatives would help accelerate the user base growth for the company. However, it reported a slowdown in growth of its userbase in Q3 adding only 35,000 users, lower than an expected 45,000 new users. We will look for the growth in its user base and guidance on how the company expects to benefit from the resolution of fiscal cliff issue. Small businesses are expected to increase their marketing spend over the next year as the pending increase in taxes has been put-off and as business conditions improve. The company can benefit from the trend by offering low cost, highly effective methods of engaging with customers.

The company 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

Constant Contact generates almost all of its revenues from content marketing. The number of paying users along with the average revenue per user (ARPU) are the primary growth drivers. The company had around 540,000 unique paying customers at the end of third quarter. The U.S. Small Business Administration estimates that there are approximately 28 million small firms in the country and the huge untapped market points to continued growth for the company. ((Moving America’s Small Business And Entrepreneurs Forward, Small Businesses Administration, May 2012)) The company had set a target of turning around the slowdown in user base growth in Q4 through increased emphasis on converting trials to paying users, and we expect the result of its effort to show in the fourth quarter earnings. [1]

ARPU growth

During Q3, cross selling initiatives saw the company post a good growth in ARPU. The recently launched tools helped improve the free to pay conversion rate with the Social Campaigns tool reporting a conversion of 4% during the quarter. We expect the company to report a growth in ARPU as more of its users adopt the new products.

Plans To Enter The Mobile Universe

Mobile devices are expected to drive traffic to small businesses in 2013. ((Constant Contact Pinpoints Five Marketing Trends That Will Impact Small Business in 2013, Constant Contact, November 2012)) Constant Contact could help small business make the most of this trend by promoting its Event Check-In app and launching the SinglePlatform tool on the mobile platform. SinglePlatform will make it easy for SMBs to distribute their information across the most popular apps and feature mobile-optimized websites. Restaurant businesses seems to have the lead on this front according to the data released by the company. We will look for the company’s plans to leverage the growing adoption of mobile devices.

We have a $16 estimate for Constant Contact, which is at 10% premium to the current market price.

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Notes:
  1. Constant Contact Management Discusses Q3 2012 Results – Earnings Call Transcript, Seeking Alpha, October 2012 []
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