Constant Contact Pre-Earnings: Trends We Are Watching

by Trefis Team
Constant Contact
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Constant Contact (NASDAQ:CTCT), a provider of engagement marketing tools such as email marketing, social media marketing, event marketing, mobile storefronts, local deals and survey products for small businesses, will report its Q3 financial results on October 24. We expect future growth for the company to be fueled by higher average monthly revenue per unique customer (ARPU) and a growing customer base.

Transitioning into a multi-product company represents a key growth strategy for Constant Contact, and the company aims to cross-sell its products using this strategic advantage. We believe this strategy will drive incremental demand for the company in the future.

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Recap Of Q2 2013 Results

Constant Contact posted revenue growth of 13% in Q2 2013 to $70.2 million. Its gross margin improved slightly by 40 basis points annually to 70.7%. Its net income also rose to $90,000 during the quarter as compared to a net loss of $462,000 in Q2 2012.

We believe the company’s operating expenses could be high in the near-future as it is making several efforts to enhance the adoption of its products and services.

A healthy improvement in each of the operating metrics was seen during the second quarter. Constant Contact saw 50,000 gross new unique customer additions in Q2 to end the quarter with 575,000 unique customers. ARPU increased to $41.79, as compared to $41.34 in the previous quarter and $39.98 in Q2 2012.

Transitioning Into A Multi-Product Company Represents A Key Strategy

Constant Contact is undertaking several measures to transition into a multi-product company. It is bundling its different products on an integrated platform and merging its different sales forces as part of this strategy. The company recently rolled out a new enhanced contact management system, and is accelerating customer migration towards this new platform.

The company is expected to test several pricing and packaging strategies for its integrated portfolio of products during the second half of the year. We will be looking for updates on this move in the earnings call.

Increase In Customer Base And ARPU Will Fuel Growth For Constant Contact

We believe Constant Contact’s customer base will rise at a healthy rate in the future, owing to its strategy of providing multiple products and customer retention rates remaining at historical levels. Providing a broad range of products and services gives the company a strategic advantage since many of its competitors do not provide the same.

We also forecast a continued growth in the company’s ARPU on account of cross-selling of products. However, we expect ARPU growth to be slow due to intense competition in the industry.

We are in the process of revising our price estimate for Constant Contact’s stock.

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