Responsys Prices Its IPO Above the Range: Indication of Good Demand

| About: Responsys (MKTG)

As more companies shift their marketing focus away from traditional print and media and towards interactive channels, relationship marketer Responsys, Inc. looks to continue their leadership position in the segment. Responsys (NASDAQ:MKTG) priced their 6.62 million share IPO at $12.00, $2 above the indicated range of $8.50-10.00. The company is selling 5.5M shares and selling shareholders are selling 1.12M shares. The proceeds are expected to be used for working capital and general corporate purposes. Leading the offering is Morgan Stanley and Credit Suisse.

Responsys is a leading relationship marketing company that enables companies to engage across email, mobile, social media and the web. Their Responsys Interact Suite allows marketers to automate campaigns across key interactive channels. They currently target four key verticals: Consumer and Retail, Travel, Financial Services, and Technology. As of Dec. 2010, they had 277 customers across these verticals, including such names as: Sears (NASDAQ:SHLD), Under Armour (NYSE:UA), William Sonoma (NYSE:WSM), Avis (NASDAQ:CAR), Orbitz (NYSE:OWW), Dollar (NYSE:DTG), Southwest (NYSE:LUV), MetLife (NYSE:MET), KeyBank (NYSE:KEY), PayPal, Salesforce (NYSE:CRM) and CheckPoint (NYSE:CKP).

Responsys has embedded themselves as the leader and #1 provider of email marketing. They are leveraging this business to support cross channel marketing. U.S. interactive marketing (email, mobile and social media) is expected to grow from $2.9 billion in 2010 to approx $6.5 billion by 2014 (per Forrester), or a 22% CAGR.

The company has grown revenue at a 42% CAGR from 2006 to 2010, from $23.3M to $94.1M. At the same time their non-GAAP gross profit has grown from $22.9M to $53.7M, their non-GAAP operating income has grown from $5.9M to $16.2M, and their free cash flow has grown from $3.9M to $11.5M. They have a highly predictable recurring revue model with 74% of their revenue from subscription and 26% from professional services. Their subscription dollar retention rate has been greater than 100% from 2007 to 2010.

SaaS software providers continue to peek investor demand, and Responsys seems to fit the bill. The offering was described as multiple times oversubscribed and books closed a day early. Typically an aggressive pricing, such as in this case of $2 above the indicated range, is a good indicator of demand, and we expect Responsys to have a solid day one intro.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MKTG over the next 72 hours.