Constant Contact Posts Strong Growth in Q3 2014, Promises An Even Better Future

Digital marketing services provider Constant Contact registered another set of strong earnings figure for Q3 2014. Revenues of $83.5 million was in line with guidance, translating into a 16% year-on-year growth. As stated by its management in the Q2 2014 earnings call, sales and marketing expense declined in the third quarter which resulted in an 80 basis point year-on-year improvement in margins. Adjusted EBITDA of $18.1 million reflected a 24% year-on-year rise, and was above guidance. Adjusted EBITDA margin in Q3 2014 was 21.7% as against 20.4% in Q3 2013.

Constant Contact has given a full year revenue guidance of $331 million to $331.4 million, with a 16% year-on-year growth. Adjusted EBITDA margin is expected to be at 18.2%, representing a 200 basis point increase year to year. For 2015, Constant Contact expects revenues and EBITDA margins to grow year on year by 17% and 150 basis points, respectively.

We will shortly update our price estimate of Constant Contact which is $30 per share.

See our complete coverage of Constant Contact

Two Out Of Three Revenue Drivers Displayed Growth In The Third Quarter

The company posted strong growth in the first two of its three revenue drivers;  new customer additions and  ARPU increased while customer retention was flat. The customer base stood at 625,000 at the end of Q3, with 10,000 net new additions for the quarter. ARPU increased by 8% year-on-year to $44.89. Constant Contact believes that, as per the trends observed in September and October, the company will deliver an ARPU within $46 to $47 in the fourth quarter. Management attributed this expectation to a seasonally strong quarter, the successful adoption of its Toolkit platform (an integrated marketing suite), and the  sustained growth delivered by its digital listing service, SinglePlatform. Monthly retention rate remained within the historical range of 98%; however, the 2% loss of customers would still translate to more than $1 million of lost revenues in 2015. The company plans to improve upon this metric with better customer callout strategies in the future.

Continuous Product Differentiation And Improvement Strategies Drive Success For Constant Contact

Launched in Q1 2014, Constant Contact’s Toolkit has given a major boost to the company’s revenue drivers. Toolkit is a bundled offering, priced using a twin-axle pricing structure. Toolkit helps in broadening the campaign reach for SMEs through emails, mobile devices, social media, and the web. It comes in three different packages namely basic, essential and ultimate. The Toolkit customer base has led to higher ARPUs, improving retention rates, and increased lifetime customer revenues. To drive the revenues coming from this platform even further, Constant Contact is still strategizing on better product positioning, selling, on-boarding, and better product experience. Some such plans include renaming the basic package as the E-mail package to clarify that Toolkit can go beyond E-mail marketing and offer more value; and adding advanced automation and market savvy features into different packages.

SinglePlatform has retained its growth momentum by registering an above 100% top line growth year-on-year, with significant growth for all the revenue drivers. For the first nine months of 2014, its enterprise channel has accumulated over 4000 customers. It has expanded its client base beyond the restaurant vertical to spas and salons, yoga studios, florists, pet care etc.

Thus, with the increasing success of its offerings, Constant Contact keeps striving to reach an even higher goal. The company seems to understand that constantly differentiating its offering and creating better value for its products are important mantras to survive in an ever changing market place.

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