Constant Contact: What Lies Ahead

CTCT: Constant Contact logo
Constant Contact

Constant Contact is the leader in online email marketing solutions for small businesses and has the largest number of paying customers among competitors. In the latest earnings, the company exceeded expectations by posting a rise in EBITDA by almost 26% YoY, and $2 million more than the guidance of about $14 million. ((Constant Contact’s Q2 2015 Earnings Call Transcript, Seeking Alpha, July 23, 2015)) This growth is likely to continue into the remainder of the year, and here’s why:

See our complete coverage of Constant Contact

Improved Marketing Strategies:

Relevant Articles
  1. Endurance Finalizes Constant Contact Acquisition, Lays Off 15% Of The Staff
  2. Constant Contact Earnings: Results Were Good Year-On-Year But Fell Short Of Guidance
  3. Constant Contact Pre-Earnings: Improved Marketing Strategies, Continued Alliances And ‘Galileo’ Could Drive Revenues
  4. Constant Contact Performed Better Than The Previous Quarter, Though Customer Growth Yet To Recover
  5. Constant Contact Q2 Earnings Preview: Recovery Expected Post The Change In Brand Positioning
  6. The Two Scenarios That Can Impact Constant Contact’s Valuation In Opposite Ways

The company markets its services to customers by driving them to its website and trying to convert these visitors into paying customers by offering them a free trial of its product. This quarter saw a healthy volume of visitors to the website, however, the company failed to convert these visitors to trials. This could be partly attributed to the failure of the Toolkit product — an integrated marketing product that created confusion in the minds of prospective customers who viewed the company primarily as an email marketing solutions company, and problems associated with credit card acceptances.

Over the course of the next few months, Constant Contact is ready to tackle this problem with various reforms. For instance, the customer acquisition marketing team is working to create more optimal web experiences, flows, and messaging. They are also testing new marketing strategies to help differentiate between the various products offered by the company. The Toolkit brand name is also being dropped and replaced simply with Constant Contact to reduce confusion among new visitors.

In addition to this, the company has also tied up with Endurance to make its credit card transactions more seamless.

If things go as planned, these reforms could enable conversion of visitors to the website into paying customers in the upcoming quarters. This will help increase the customer base and, in turn, raise the company’s top line.

Rolling Out Galileo:

After the failure of Toolkit, the company invested time in creating a more consolidated product, internally named Galileo. Galileo is said to represent a fundamental change in the way customers use the company’s services. It is an editing tool that allows more advanced campaigns and is not limited to email marketing. As of the last quarter, more than 50,000 customers have used Galileo and provided positive feedback. This new product enables customers to easily create customized marketing products that suit their need. With proper implementation and marketing of Galileo, Constant Contact could outshine the competition who depend solely on their email marketing products. This move could enable the company to capture a larger portion of the market.

All new customers are now able to use Galileo and the company hopes to migrate a bulk of its existing customers to use the product by mid CY 2016.

Alliance With Endurance Showing Promise:

The company’s alliance with Endurance proved to help the company this quarter. In May, the partnership with Endurance went into its second phase. The company witnessed a higher number of customers added in June, as a result. It is estimated that this trend is likely to continue later into the year as well, if the company can effectively build on this early momentum.

In addition to this, the first phase in the partnership was rolled out towards the end of the last quarter. More significant phases in the partnership are likely to be added in the third quarter. If all things go well, this alliance could help get more customers.

The company is aiming to add 30,000 to 40,000 customers by the end of this financial year.

SinglePlatform Could Bring In More Customers:

SinglePlatform’s enterprise business performed really well in the last quarter, adding many customers in their direct channel. The biggest win of the quarter was the addition of Bloomin’ Brands, which encompasses more than 1,400 restaurants including some big names like Outback Steakhouse and Carrabba’s Italian Grill.

SinglePlatform currently provides services at a $79 price point. There were trials in which they tried introducing a $99 price point, however decided against it, so as not to hinder customer growth. With a more aggressive marketing strategy the company could definitely capitalize on increasing its customer base.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research