Constant Contact Expected To Deliver A Healthy First Quarter With In A Buoyant U.S. Market

Constant Contact (NASDAQ: CTCT), the digital marketing service provider to SMEs (Small and Medium Enterprises), is set to release its first quarter earnings on April 30th. For 2014, Constant Contact experienced year-on-year revenue growth of 16.2% to $331.7 million, exceeding management expectation of $331.4 million. Adjusted EBITDA grew by around 32% year on year to $60.6 million and the adjusted EBITDA margin experienced around 220 basis point expansion to 18.3%. ^[1]

The introduction of Toolkit as an “integrated online marketing suite” in April 2014, coupled with SinglePlatform’s (Constant Contact’s digital listing service) display of 100% year-on-year top line growth, are the primary reasons for Constant Contact’s revenue growth. The healthy top line growth trickled down to the bottom line too, with Constant Contact registering a robust 98% year on year growth of net income to $14.3 million. ^[2]

The three revenue drivers for Constant Contact are: new customer additions, Average Revenue Per User (ARPU), and customer retention. In 2014, Constant Contact performed well in terms of all three drivers. The company experienced over 50,000 gross new unique customer additions for each of the quarters of 2014. The customer base stood at 635,000 at the end of the fourth quarter of 2014 (~7% year-on-year growth). The ARPU for 2014 increased to $44.94 per user, displaying a 9% year-on-year growth. Customer retention stood at 97.8%. ^[2]

We will update our price estimate of  Constant Contact which is currently at $34.20 per share post the first quarter earnings release.

See our complete coverage of Constant Contact

Toolkit Is Expected To Be A Top Growth Contributor For Constant Contact In The First Quarter

Constant Contact introduced its Toolkit offering in the first quarter of 2014. Toolkit facilitates small businesses and non-profits in launching business campaigns across marketing channels, such as email, social media, mobile access and the Web. Toolkit offered an exhaustive marketing platform to simplify its customers marketing efforts. The capabilities, which were erstwhile accessible only to larger companies, enabled small businesses to reach repeat customers and simultaneously gain newer customers. Recently, the packages within Toolkit were renamed, from basic, essential and ultimate to email, email plus and personal marketer to better reflect the type of offerings.

Constant Contact witnessed better customer engagement, higher ARPU,  increased retention rates, and increased lifetime customer revenue from its Toolkit users. Currently, the company is striving to further monetize the Toolkit Platform by channelizing its efforts towards better product positioning, more effective selling and on-boarding, and improved product experience. With the deeper penetration of features such as automation tools, the management believes that the personal marketer package adoption is bound to rise. Package mix penetration is one of the growth levers for 2015. ^[3] We expect Toolkit to be a major contributor to Constant Contact’s first quarter growth and user expansion.

SinglePlatform Will Be An Important Growth Driver In Q1 2015

SinglePlatform, Constant Contact’s digital listing service, registered over 100% year-on-year top line growth in 2014. The reason behind this success was its publisher network that comprises of top business directories, search engines, ratings and review sites, and mobile discovery applications. Consequently, this provides a wide reach for small businesses by distributing content-rich listing data. SinglePlatform generated nearly 400 million views for small businesses, displaying an over 20% year-on-year growth in views. It has expanded its client base beyond the restaurant vertical to spas and salons, yoga studios, florists, pet care, etc. Known for its constant upgrades, Constant Contact is further enhancing SinglePlatform’s features by enabling action buttons on listings, which will allow small business’ customers to go beyond discovery, so as to order, reserve, book or buy.

The Three Growth Pillars For 2015

• Strategic Alliances Might Provide Inorganic Growth In 2015

Constant Contact is contemplating mergers and acquisitions in 2015. The company’s strong cash position and cash generation (free cash flow of $33 million in 2014 and expected free cash flow for 2015 is $40 million) gives it a further avenue for expansion. The inorganic growth due to such acquisitions, coupled with an expanded global reach, can contribute to a profitable growth in 2015.

• Online Marketing Is Of Paramount Importance For Small Businesses

According to Constant Contact’s predictions for 2015, the merging of social networking with mobile channels will aid local business’ growth. Also, emails play a pivotal role in the growth of small business as there is an element which can be controlled by the sender, in terms of the intended recipients, the timing of the message and the content. Email marketing’s popularity was evident for Constant Contact when it recorded its largest email send day on Cyber Monday 2014 when it sent more than 365,000,000 emails.

Constant Contact’s typical customers are small businesses, which lack dedicated budgets marked for marketing initiatives. As opposed to traditional offline marketing solutions, online marketing tools provide businesses with immediate impact on a large scale at low prices. The prospects of gaining a wide reach with relatively low spending is driving growth for digital marketing among small enterprises. The growth of digital marketing in turn will continue boosting Constant Contact’s growth in sales and profitability.

• Recovering U.S. Market Offers Promising Growth Opportunity

Constant Contact derives around 90% of its revenues from the domestic U.S. market. The improving U.S. economy could help small and medium enterprises build scale. There are more than 31.5 million registered small businesses and non-profits in the U.S., ^[2] and hence we believe there exists significant scope for the company to expand its customer base and grow its ARPU  going forward.

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More Trefis Research

1. Constant Contact Form 8-k, Constant Contact, January 29, 2014 [↩]
2. Constant Contact Form 10-k, Constant Contact, February 25, 2015 [↩] [↩] [↩]
3. Constant Contact’s Q4 2014 Earnings Call Transcript, Seeking Alpha, January 29, 2015 [↩]