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Monday, December 17, 2007

ExactTarget Delivers S-1 - Headed for IPO

On the heels of ConstantContact's Initial Public Offering, mid market leader ExactTarget filed plans to raise up to $86.3 million.

Let's break down the numbers that will serve as gossip and competitive fuel in the email marketing industry for the coming months. (This info is taken from their S-1 )

The top financial takeaways....
-For the nine months ended Sept. 30, ExactTarget’s earnings rose to $2.1 million from $1.8 million in the year-ago period.

-The company’s revenues also rose to $34.2 million, from $22 million.

Direct excerpts/highlights from the S-1 that I found the most interesting.

-ExactTarget is a leading provider of on-demand email marketing software solutions to organizations of all sizes. Our clients depend on our solutions for business-critical marketing and event-triggered communications to increase sales, improve their return on marketing investments and strengthen customer relationships. Through our email offering and our recent expansion into emerging one-to-one marketing technologies, we help our clients deliver the right message to the right person at the right time through the right medium

-As of September 30, 2007, our direct client base consisted of more than 2,800 organizations of all sizes, which included approximately 400 marketing service providers.

-Through these marketing service providers, more than 2,000 additional organizations utilize our technology. Many of our clients are well known companies or organizations such as,, Florida Power and Light, Gannett Co., Inc./USA TODAY, the Indianapolis Colts, The Leukemia & Lymphoma Society, Liberty Mutual Group, Papa John's and Wellpoint, Inc.

-We have achieved 27 consecutive quarters of organic revenue growth, and no single client represented more than 3% of our revenues in the nine months ended September 30, 2007.

-We achieved revenues of $19.7 million and $31.2 million for fiscal years 2005 and 2006, respectively. Our operating income increased from a loss of $1.4 million to income of $2.7 million during the same period.

-Our annual subscription pricing ranges from $1,500 to more than $1,000,000,...the majority of our revenue is derived from client contracts having a value ranging from $10,000 to $150,000.

- The demand for email marketing products and services is large and growing, driven by organizations' desires to leverage the efficiency and effectiveness of this marketing channel. According to Forrester Research, the size of the U.S. email market for technology and services related to integration, strategy, delivery, creative and analytics is expected to grow from $2.3 billion in 2007 to $3.5 billion in 2010, representing a compound annual growth rate of 15%. We believe these segments of the market will grow at a higher rate due to increased outsourcing to email providers as well as growth in event-triggered email communications. Additionally, we believe our total addressable market opportunity will be larger as organizations embrace emerging one-to-one marketing technologies such as short messaging service, or SMS, really simple syndication, or RSS, web landing pages and voice automated solutions.

-Our business is dependent on the market for email marketing solutions and there may be changes in the market that may harm our business...

A number of factors could affect our clients' assessment of the value or effectiveness of email marketing, including the following:
• continual growth in the number of emails sent or received on a daily or regular basis;
• the ability of filters to effectively screen for unwanted emails;
• the ability of smart phones or similar communications to adequately display email;
• continued security concerns regarding Internet usage in general from viruses, worms or similar problems affecting Internet and email utilization; and
• increased governmental regulation or restrictive policies adopted by ISPs that make it more difficult or costly to utilize email for marketing communications.
Any decrease in the use of email by businesses would reduce demand for our email marketing products or services and our business and results of operation would suffer

-During the nine months ended September 30, 2007, approximately 80% of all our existing client contracts that were eligible for renewal were renewed

-We have increased our number of employees from 124 at December 31, 2004 to 268 at September 30, 2007 and have increased our revenues from $11.6 million in 2004 to $31.2 million in the fiscal year ended December 31, 2006.

-Our client base has grown to more than 2,800 direct clients and more than 2,000 indirect clients as of September 30, 2007

-We have entered into a license agreement with Hula Holdings, LLC and Subscribermail, LLC (to whom we collectively refer to as Subscribermail) under which we have a non-exclusive license to use methods covered by a business process patent held by Subscribermail for multi-level electronic mail communications programs. Assuming we make all required license payments, the license will survive for the term of the patent, which expires in November 2021. If we were to lose the license for any reason, the quality and competitive value of our products may decline, which would have a material adverse effect on our revenue, financial condition and results of operations. Because the license is non-exclusive, our competitors may have access to this methodology.

-Our business requires trained employees with a skill set unique to the email marketing industry. Competition for these personnel is intense, and we have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we do. Often we are required to recruit qualified candidates from outside the Indianapolis, Indiana, area, where our headquarters is located, which can be time-consuming and costly.

Be sure to go back and read my breakdown on Constant Contact's numbers to compare and contrast. It is not often that the inner workings of a company in the email space are revealed. I imagine this had made for some pretty interesting reading for ESP executives and others in the industry that is prime for consolidation.

Now 3 questions...

1)Would you rate this stock a buy, sell or hold?

2)How about ConstantContact?

3)Who will be the first company to be absorbed by either of these 2 industry giants?

Tuesday, December 04, 2007

When an Email Newsletter Collided with Big Money Football

In the South, it is always college football season, but with the bowl games looming and BCS chaos abound, it seems college football is on everybody's mind these days.

Which reminded me to post about an interesting scenario where $1,200 bought you an exclusive weekly email newsletter. I don't know of many newsletters commanding subscription premiums but it sounded like this was a winner. From an email standpoint, the ROI surely was strong but it doesn't appear that straightforward.

Texas A&M football coach Dennis Franchione utilized his email marketing best practices to send a weekly email newsletter about the A&M football team to a small group of boosters willing to pay $1,200 per year in subscriber fees over the last three seasons.

Unique content - check.
Relevant and timely messaging - check
Targeted Audience -check
Big picture goals defined with email acting as the communication platform of choice - check

Again, on the surface it looks like Franchione should speak at the eec's upcoming email evolution conference in San Diego. However, this is college football and nothing is that simple.

Once this email approach leaked out, Franchione shut down this permission based newsletter. The newsletter, titled “VIP Connection,” was supposed to be confidential because it contained detailed injury information and other tidbits that Franchione does not tell the media or public.

However, the San Antonio Express-News obtained a copy of the newsletter and confronted A&M officials. The newsletter does not appear to violate any NCAA rules. A public affairs specialist for the Office of Civil Rights in Washington D.C., said Franchione probably did not violate any laws related to the Health Insurance Portability and Accountability Act.

According to the Dallas Morning News Franchione said, “There was no intent to deceive anyone.” He said “12 to 15″ people subscribed to the newsletter, and all money went directly to the Bryan, Texas, company that oversees Franchione’s personal Web site, Franchione, who makes $2 million annually according to his A&M contract, said he has offered to refund all money obtained for this season.

All newsletter subscribers signed a legal non-disclosure agreement. From a blog that broke down the situation, the “VIP Connection” was simply a typed email message with no graphics. It was usually no longer than two pages.

Who said subscription based emails could not work? Just tread lightly if your audience or content happens to be in the college sports world where anything can and probably will happen.