Constant Contact (NASDAQ:CTCT) is a provider of various online marketing and social media engagement tools for small businesses. The company started out with an Email Marketing offering for small businesses and expanded its product line with offerings such as EventSpot, Social Campaigns, SaveLocal, Online Survey and SinglePlatform through various acquisitions. Constant Contact has a market capitalization of approximately $787 million with annual revenues of about $285 million.
In this article, we focus on key drivers that help Constant Contact expand its average revenue per user (ARPU). The company has a growing customer base of approximately 575,000, which has seen some deceleration in recent times. Hence, ARPU is a crucial driver for the company's top line amid weakening new customer acquisitions. We have a $26 Trefis price estimate for Constant Contact, which is in line with the company's current market price.
Higher Priced Offerings Should Boost Top Line
Constant Contact's gradual shift from being an email marketing service provider to offering more engaging services such as Social Campaigns and EventSpot have improved the company's top line. Since its IPO in 2007, Constant Contact has maintained a 4% growth in its ARPU. However, a slowdown in adding customers has continuously impacted top line growth. The company's revenue growth rate decreased from 73% in 2008 to 13% in 2013, dragged down by slowing new customer growth.
In order to maintain a double-digit revenue growth going forward, we expect Constant Contact to expand the number of product offerings at a higher price point to boost ARPU. This way, an acceleration in ARPU can offset the decline in the rate of new customer additions, thereby allowing the company to maintain a double-digit revenue growth rate. In the recently concluded fiscal 2013, Constant Contact reported that its ARPU was boosted by the addition of the SinglePlatform offering priced at $79/month.  For fiscal 2014, the company expects SinglePlatform to drive ARPU higher as it expands faster than other offerings.
In addition to higher priced offerings, Constant Contact also began to offer multiple products together toward the end of Q4FY13.  These bundled offerings provide small businesses with essential tools they need to have effective end-to-end marketing campaigns at comparatively low prices. Furthermore, the company expects its partner channel to grow and contribute to a higher share of overall revenues. At the end of 2013, Constant Contact derived about 20% in revenues from its partner channel.  A higher share of revenues from partner channels helps drive additional customers through a larger partner base.
Investments Into Analytics Should Be Fruitful In The Long Run
Investments into analytics over the past 12 to 18 months helped drive revenue growth and margin expansion for Constant Contact in 2013.  Predictive analytic tools such as lead scoring provide greater actionable insights and give recommendations that are more behaviorally relevant, and more personal and timely. These personal, actionable insights help expand user conversion rates and, therefore, expand the top line for the company. Going forward, the company's management plans to leverage predictive analytics and Big Data tools to drive additional revenue growth and margin expansion. However, we believe this to be a longer-term play. In the short term, higher priced offerings should drive ARPU and top line performance for Constant Contact.
Disclosure: No positions.