What The Acquisition Of Responsys Means For Oracle

by Trefis Team
Rate   |   votes   |   Share

Oracle Corp. (NYSE:ORCL) recently announced the acquisition of digital marketing firm Responsys for $27 per share or $1.4 billion, excluding cash. [1] Described as the leading provider of Enterprise-Class Cloud Marketing software, B2C (Business to Commerce) Responsys has an analyst consensus revenue estimate of $202 million for the just ended year. This represents an increase of 24% over the prior year $163 million, when it generated gross and operating profit margins of 54% and 7%, respectively. It competes with firms like Constant Contact (NASDAQ:CTCT), ExactTarget (acquired by Salesforce.com) and Marketo within the digital marketing industry.

Here we analyze how Responsys’ financial position stacks up against that of ExactTarget and Constant Contact, and how Oracle could integrate Responsys into its core business. We have a $44 Trefis price estimate for Oracle, which stands nearly 18% above its current market price of $38.

See our complete analysis for OracleSalesforce.comConstant Contact

Strong Growth Potential In Digital Marketing Industry Justifies High Acquisition Multiples

According to technology research firm Gartner, digital marketing spending in 2012 was approximately 2.5% of company revenues, and this share is expected to increase going forward. Within the U.S. alone, digital marketing spend stood at approximately $62 billion in 2012. [2] Global digital marketing spend is expected to increase by about 15% annually between 2012 and 2016. [3] Citing this huge market potential, software development companies are acquiring digital marketing players.

Responsys and ExactTarget were acquired at fiscal 2012 revenue multiples of 9.12x and 8.56x. These multiples are at a premium presently compared to median acquisition cost of 1.9x revenue for more than 70 similar deals historically. [4] However, given the growth anticipated in the digital marketing industry, we believe these are viable multiples for these companies.  We note too that software companies typcally trade at a premium, given their high profitability.

We also think that the higher acquisition multiple for Responsys is justified in comparison to ExactTarget. Here’s why.

Compared to Responsys, ExactTarget and Constant Contact had higher revenues for fiscal 2012, at approximately $292 million and $252 million, respectively. However, ExactTarget’s gross profit margin was 65% and operating loss margin was 7% for the same period. While Constant Contact had a higher gross profit margin of 71% and a marginally lower operating profit margin of 6% compared to Responsys. On the net profit margin front, both Responsys and Constant Contact had identical margins of about 5% while ExactTarget had a net loss margin of 7%.

Better operating and net income margins for Responsys indicats that its financial position is better compared to ExactTarget, while Constant Contact has the best financial health among the three players, with good gross margin, operating margin and net income margin. With major software players making acquisitions of digital marketing companies, we could see an even higher revenue multiple for Constant Contact if it were made an offer given its strong financials.

How Oracle Could Integrate Responsys Into Its Business

Responsys’ press release states that Oracle will bring together its two marketing acquisitions, Responsys and Eloqua, into its Marketing Cloud. Oracle acquired Eloqua in December 2012 for approximately $870 million. Similar to Responsys, Eloqua is a provider of  SaaS marketing automation software. However, Eloqua is an established B2B marketing solutions provider while Responsys is an established B2B and B2C digital marketeer. Currently, Oracle offers various cloud marketing solutions ranging from customer targeting to engagement, lead conversion, and analysis. By integrating these two companies into its own Cloud Marketing suite, Oracle gains a comprehensive customer experience cloud that enables businesses and customers to drive strong customer interaction across marketing campaigns on a single platform.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. Oracle Buys Responsys, Responsys Pressroom, December 2013 []
  2. Study: Digital Marketing Industry Worth $62 Billion, WSJ Digits, October 2013 []
  3. Global Digital Marketing Software Market 2016: Industry Analysis, Size, Share, Growth, Trends and Forecast Research Report, PR Web, August 2013 []
  4. Salesforce to Buy ExactTarget for About $2.5 Billion, Bloomberg, June 2013 []
Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!