We know the insides and outs of email marketing and even online social networking for business but have always failed to grasp Constant Contact (CTCT — $16).
Even after meeting with the company management we only came away with “we do what we do very simply with lots of hand holding for one and two person companies without any technology skills.” This was enough to describe the company but hardly an exciting investment.
By way of context we first talked about the stock as a short back in October of 2007 at $24 and published a fuller note on the company with a $14 IV estimate in February of 2008. Most of what we put forward in that research report remains true but acquisitions, especially the recent purchase of SinglePlatform, have blurred the picture more. We’ve uploaded the report and here is the link (PDF): Constant Contact CTCT Update February 2008
Constant Contact has tried to move into more areas like event management and social networking to provide additional offerings to their existing base of users. They’ve made some acquisitions to accomplish this but have not made any traction at all outside of their existing base of users. These acquisitions may not have moved the needle much (like NutShellMail) but they were fairly harmless.
Spending $100M for an also-ran in the online restaurant menu and promotion space is not good. (It’s true they are working to generalize their product but it’s mostly shown in the marketing and not the market. The number of employees is rather small and only about $5M has been invested in the company. That’s one hell of a premium. If CTCT had acquired this company for $15-20M I think we’d all give management the benefit of the doubt and at least give them credit for being a disciplined buyer. But that’s not the case here.
We also note that there are larger and more successful private companies (like www.yext.com) in this space.
Not everyone out there follows our Twitter stream so may have missed a quote we took from an online forum on email marketing where experts expressed the fact that “you probably won’t go wrong in choosing any leading platform from Mailchimp to Aweber as long as you don’t end up with Constant Contact.”
Their message is still that they are not trying to impress anyone who is technically savvy but in this world of “consumer driven IT” that strategy is not working. Consumers and their generally available technologies just keep getting better.
And alongside it all CTCT keeps looking clunkier.
[No investment position.]