IPO Look: Exact Target

Based in Indianapolis, Indiana, ExactTarget  (proposed ET) scheduled a $136 million IPO with a market capitalization of $1 billion at a price range mid-point of $16 for Thursday, March 22, 2012.

ET is one of six IPOs scheduled for this week. See our IPO calendar. Nine more scheduled for the week of March 26.

SUMMARY
ET characterizes itself as a software as a service (SaaS) company specializing in cross-channel interactive marketing.

2011 revenue increased 54% to $207 million from $134 million in 2011.Losses increased to 17% of revenue from 9% of revenue.EBITDA was negative for the second year in a row.

For the most December 2011 quarter subscriptions accounted for 80% of revenue and 74% of gross profit.20% and 26% respectively came from professional services.

Annualizing the December 2011 quarter and at the price range mid-point of $16, ET is priced at 4.3 times sales, 4.7 times book and –43 times earnings.For the last four quarters (non-adjusted) EBITDA is basically zero, which gives cause for concern.

Constant Contact (CTCT) and Responsys (MKTG) sell respectively for 3.7 and 3.3 times sales; 11 and 63 times earnings; and 5 and 3.5 times book value.

CONCLUSION
ET has a good chance of joining the ‘cloud’ companies with an increase in IPO price the first day, but because the business still consumes cash, we would sell ET into the after market IPO demand.

BUSINESS
ET is leading global provider of cross-channel, interactive marketing SaaS solutions that empower organizations of all sizes to communicate with their customers through the interactive channels they use most — email, mobile, social media and websites.

ET solutions provide marketers with a broad and powerful suite of integrated applications to plan, automate, deliver and optimize data-driven interactive marketing campaigns and real-time communications to drive customer engagement, increase sales and improve their return on marketing investment.

27% ANNUAL GROWTH IN US MARKET
According to Forrester Research, Inc. U.S. marketers plan to increase spending on interactive channels (defined as display, search, email, mobile and social media) as a percentage of total advertising spending from 16% in 2011 to 26% in 2016, creating a projected $77 billion market in the United States by 2016, of which email, mobile and social media marketing spending is expected to grow from approximately $4.8 billion in 2011 to nearly $15.7 billion by 2016, representing a compound annual growth rate of 27%

ET believes the addressable market outside the United States presents an even greater opportunity.

HISTORY
ET ha achieved 44 consecutive quarters of sequential revenue growth since inception in December 2000.

ET was profitable for the first time during the year ended December 31, 2006 and recorded operating income between 8% and 9% of revenue each year from 2006 through 2008.

In 2009, ET raised significant private capital and implemented a strategy focused on increased investments in sales, marketing, research and development activities and international expansion.

This investment strategy accelerated revenue growth and also resulted in operating losses. ET has established a direct presence in international markets through acquisitions of resellers in the United Kingdom, Australia and Brazil, and subsequent investments in each of these operations.

REVENUE
ET generates revenue through the sale of subscriptions to a suite of cross-channel, interactive marketing SaaS solutions and the delivery of professional services.

More than 80% of revenue in each of 2010 and 2011 was derived from enterprise, medium-sized and small business clients, with the balance attributable to marketing service providers that resell ET’s solutions to thousands of their customers. ET serves a wide range of clients across many industries and sizes, and revenue is not concentrated within any single client or small group of clients.

CLIENTS
ET’s direct client base consisted of over 4,700 organizations as of December 31, 2011, ranging from enterprises to small businesses in numerous industries, including retail and e-commerce, media and entertainment, travel and hospitality, financial services and insurance, technology, daily-deal and flash-sale and marketing service providers.

Among ET’s direct clients are U.S.-based companies such as Ally Financial, Inc., Angie’s List (ANGI), CareerBuilder, LLC, Groupon, (GRPN), Microsoft (MSFT), Nationwide Mutual Insurance Company, Oakley, Inc., OneAmerica Financial Partners, Inc., One King’s Lane, Inc., Papa John’s International, Inc., priceline.com (PCLN), The Scotts Miracle-Gro Company, Tommy Hilfiger division of Estee Lauder (EL), WellPoint (WLP) and Zappos.com division of Amazon (AMZN), and companies headquartered outside the United States such as Abril Group (Brazil), Fairfax Media Limited (Australia), Icelandair Group (Iceland) and Telegraph Media Group Limited (United Kingdom).

SUBSCRIPTIONS
ET provides solutions primarily through annual and multi-year subscriptions based on volume of contracted utilization, level of functionality, number of interactive marketing channels, number of users and level of customer support.

INDUSTRY TRENDS
Changes in media consumption, real-time engagement through social media and pervasive mobile connectivity have challenged marketers’ ability to deliver relevant, meaningful and timely communications. Organizations require a cross-channel view of their customers to drive real-time, relevant engagement and positive return on marketing investment.

Consumers are increasingly using email, mobile, social media and websites to access information and interact with brands. Media consumption is shifting from offline channels to interactive channels, driving marketers to increase the percentage of advertising spending on interactive marketing.

COMPETITION
Competition includes Aprimo, Inc. (which was acquired by Teradata Corporation in 2011), CheetahMail Inc. (a subsidiary of Experian Group Limited), e-Dialog subsidiary of eBay (EBAY), Eloqua Limited, Epsilon Data Management, LLC (a subsidiary of Alliance Data Systems Corporation), Responsys (MKTG),Silverpop Systems Inc., StrongMail Systems, Inc., Unica Corporation division ofInternational Business Machines (IBM),Yesmail (a division of infoGROUP Inc.), and Constant Contact (CTCT)

USE OF PROCEEDS
ET expects to net $126 million at the price range mid-point of $16.Proceeds are allocated for general corporate purposes, such as expanding our sales and marketing teams, international operations, product development efforts and general and administrative functions, as well as for working capital.