Update on SMTP — Email Delivery Networks

by Kris_Tuttle on July 12, 2011

  • Since we pub­lished our orig­i­nal cov­er­age report SMTP, Inc.: Here Come Email Deliv­ery Net­works on May 3rd the com­pany has con­tin­ued to exe­cute on their growth strat­egy and the shares have set­tled into a more sta­ble trad­ing range. (See related post for more information.)
  • SMTP recently com­pleted the acqui­si­tion of over 4,000 IP addresses that are the foun­da­tion of suc­cess­ful email deliv­ery. This will allow them to sup­port thou­sands of new customers.
  • The com­pany also recently con­tracted to build up a new dat­a­cen­ter with a co-location provider that will allow for fur­ther growth and deliv­ery of higher ser­vice lev­els. It’s expected to be han­dling cus­tomer vol­umes in Q3 of this year.
  • Social mar­ket­ing and behav­ioral com­merce trends led by com­pa­nies like GroupOn and Liv­ing­so­cial are adding to the already high demand for reli­able email deliv­ery ser­vices. Although mes­sage vol­umes are also expand­ing, email remains the sin­gle best com­mon denom­i­na­tor for basic communication.
  • We con­tinue to see this mar­ket evolve in a sim­i­lar fash­ion as the con­tent deliv­ery space and expect that over time most inter­net infra­struc­ture ser­vice providers (like Ama­zon and Rack­space) will want to add email deliv­ery net­works to their services.
  • SMTP will be report­ing results for the June quar­ter in late July. Due to the nature of their busi­ness model we expect no sur­prises and a fairly smooth con­tin­u­a­tion of the growth that the com­pany has been gen­er­at­ing the last few quarters.
  • Investors look­ing for a rapidly grow­ing, prof­itable (27% oper­at­ing mar­gins), small cap­i­tal­iza­tion inter­net infra­struc­ture ser­vice provider should take a close look at SMTP.
  • The com­pany recently com­pleted a “direct to mar­ket” IPO process and is just now acces­si­ble to pubic investors. Our intrin­sic val­u­a­tion (IV) remains $3 per share.

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