Constant Contact (NASDAQ:CTCT) is ready to release earnings for the third quarter on November 5. Despite a rocky start to the year in Q1 (due to a brand repositioning failure), the company has made amends to their strategy, leading to a better Q2. The Waltham-based online marketing company met or exceeded guidance in the second quarter. While revenues were on the lower end of their guidance range, EBITDA surpassed the guidance by more than $2 million. With better marketing strategies, new partnerships, and a consolidated product (Galileo), the company seems to be on the right path to increase growth. 
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As mentioned earlier, Constant Contact had attempted to reposition their branding earlier in the year. The company hoped to evolve from providing more than just email marketing solutions to one that offered more integrated marketing solutions. In this effort, the management introduced Toolkit, which enabled customers to create multiple marketing campaigns across certain high-yielding marketing channels. However, this new strategy failed considerably as the move confused customers who primarily viewed the company as an email marketing provider. This confusion led to lesser customer conversion rates in Q1, which, in turn, led to lower customer additions.
In order to overcome the issue, Constant Contact changed their advertising strategies in order to focus more on their email marketing solutions. The company decided to drop the Toolkit name and replace it with just ‘Constant Contact.’ Despite this setback, however, Constant Contact still hopes to evolve into an integrated marketing provider. In this respect, the management unveiled a new platform, internally named Galileo. This new platform increases simplicity, while enabling more visually aesthetic campaigns.
As of the last quarter, about 50,000 customers and trialers were using the product. So far Constant Contact has received positive feedback. The company aims to migrate all existing and new customers to this new integrated marketing platform by 2016. The management hopes that Galileo will provide them with a unique competitive advantage, that will lead to greater customer growth.
Constant Contact has forged many new strategic partnerships this year. Such partnerships tend to drive customer growth, thereby increasing revenues. The company’s partnership with Endurance began a new phase in May. Many new customer additions were witnessed as a result in Q2. The management believes that there will be many more customer additions in the quarters to come as the partnership strengthens. Furthermore, it was revealed that the company’s partnership with Web.com is slated for increased and more significant activities in Q3, the results of which (likely positive results) will be disclosed in the earnings conference call this week.
Additionally, new alliances were forged in the enterprise segment of the company this year, as SinglePlatform witnessed good customer additions. In the last quarter, Constant Contact started a partnership with Bloomin’ Brands, which encompasses over 1,400 restaurants, including major names like Outback Steakhouse and Bonefish Grill. In August, SinglePlatform was named the “preferred menu provider” for OpenTable, the global leader in providing online restaurant reservations. This partnership will enable all the restaurants on OpenTable to make unlimited changes to their menus and have these changes reflect on the website and mobile app. 
On October 15, Constant Contact announced that the company is joining the Facebook Marketing Partner Program. The company provides small businesses an opportunity to convert their Constant Contact emails into a “highly targeted, mobile-optimized digital ad on Facebook.” 
If things go according to plan, these alliances could prove to be a major tailwind, adding more customers, and thereby, increased revenues in the coming quarters. The company hopes to see more wins in terms of alliances this year.
Disappointing ARPU Numbers:
The Average Revenue Per Customer (ARPU) stood at $47.12 last quarter. ARPU grew at a sluggish 6% year-on-year and was significantly below the company’s expectation. The management attributed the low numbers to a skewed product mix. It was noted that about 80% of the new customers chose the Email Package. This figure is significantly larger than previous quarters. Additionally, the company’s aim in the last quarter was to increase their customer base (after the Toolkit failure), therefore giving lesser importance to product mix. In that respect, the company increased marketing campaigns to drive their email marketing product.
Constant Contact is now planning to focus more on product mix in the coming quarters. However, given the numbers so far, the company has decided to revise their ARPU guidance from $50 to $49.
The company is set to relaunch their mass media marketing this fall. Constant Contact has worked very hard over the last quarter to test this new marketing approach which the company hopes will help customers identify the various products the company has to offer. Given this, and the factors discussed above, it seems plausible that Q3 could be the best quarter in the year so far.
Analysts estimate an EPS of $0.26 in Q3. 
It would also be worthwhile to mention that Endurance International Group Holdings Inc (one of Constant Contact’s partners since Q1 this year) announced earlier this week that it will buy the company in an attempt to increase its customer base. The deal is estimated to cost about $1.1 billion, which Endurance is planning to finance via debt. The acquisition is slated to be finalized early next year.
View Interactive Institutional Research (Powered by Trefis):
- Constant Contact Q2 Earning’s Call Transcript, www.seekingalpha.com [↩]
- Single Platform Named Preferred Menu Provider For OpenTable, www.constantcontact.com [↩]
- Constant Contact Earns Facebook Marketing Partner Badge, www.constantcontact.com [↩]
- Earnings Of $0.26 Expected For Constant Contact, www.themarketsdaily.com [↩]