Spam You Won't Can

 | May 04, 2012 | 11:30 AM EDT
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Spam. Everyone hates it. If I don't know you, don't email me.  But what if I wished I did know you?

Well that's smart marketing, and the business of a new breed of email marketing software makers who think they have figured out a way to make you love getting email bombs from every direction, including Facebook and Twitter.

A leader in this niche is ExactTarget (ET), which started as just another high-class spam weaponizer but has transformed into a Software as a Service (SaaS) technology leader that helps companies reach new customers across all social and distribution networks.

There was a time when the most effective way to market to consumers was to buy TV and print display space. You know, when dinosaurs roamed the earth and newspapers covered them.

Don't get me wrong, television marketing is still king, after all Super Bowl ads went for as much as $3.5 million a pop this year. But with the growth of Internet and mobile users, the shift to online marketing is growing faster than any other medium, and ExactTarget is at the heart of this transformation.

The company's goal is to help businesses increase sales, optimize marketing dollars, and strengthen customer relationships by providing a single interactive marketing hub that controls every aspect of the business-customer relationship.

Instead of a separate application (and often a separate company) to manage email, social-media networking, and mobile marketing, ExactTarget is one of the few companies in the world that provides one software solution that captures every need.

The company's client list of nearly 5,000 reads like a Who's Who of the business world, including Microsoft, Vodafone, Xerox, Hitachi and Papa John's, crossing nearly every industry.  The Indianapolis-based firm has more than a thousand employees across several global offices, including San Francisco, London, Melbourne, Sydney and Sao Paulo.

Over a decade ago, co-founders Scott Dorsey, Chris Baggott and Peter McCormick met to discuss an idea to help businesses communicate with their clients over email.  Up to that point, business-to-consumer direct marketing over email had not been utilized, at least in any large-scale way, and these guys saw a golden opportunity.  Dorsey remains in charge as chief executive, having led an expansion to marketing campaigns across email, mobile, social media and the Web.

After a few years in business, a big break came for the firm in 2003 when CareerBuilder tapped ExactTarget to run its email marketing campaign, an endeavor that included millions of emails a month.

Now ExactTarget's primary product is its Interactive Marketing Hub, which is the central framework through which businesses can plan and observe all customer communications, whether through Facebook, Twitter, blogs, or anywhere else on the Web where a company is being discussed or mentioned. 

It's evident we live in a very different world from just a few years ago, a world where things go viral in a matter of seconds.  Being able to manage your brand, understand your customers, and react instantaneously is no longer a luxury; it's a priority.  What was originally a niche segment of the business universe has gone mainstream, and ExactTarget is capitalizing on that movement.

ExactTarget shares went public in March at an initial pricing of $19, but quickly rose to close above $25 its first trading day.  Shares have held steady in the $25 to $27 range as investors eagerly await the company's first-quarter earnings results next month. The firm grew revenue every year of its existence, recently climbing to $207 million in 2011 from just under $20 million in 2006. 

That type of growth isn't common. In fact, research from Deutsche Bank predicts the global market for ExactTarget's services will grow to more than $50 billion by 2020, up from $11 billion now, representing annual growth of 19% a year.

It's a huge trend that analysts predict will explode as more marketing budgets transition from traditional TV, radio and print to online avenues like email, social media, video and mobile marketing.

With a $1.7 billion market cap, ET shares are currently trading at a price-to-sales ratio of 8.4x the trailing 12 months, which is a bit pricey for its peer group. Considering sales grew 55% last year, you really have to focus on the future for this high-growth company.  With 44 consecutive quarters of growth combined with subscription revenue renewal rates above 90%, don't expect a slowdown anytime soon. 

Put ExactTarget on your list of high-growth stocks to buy in a panic later this year, and then potentially hold for a long time.

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