Constant Contact Share Offering May Limit Further Near-Term Decline

Mar.31.08 | About: Constant Contact, (CTCT)

By Kris Tuttle

Constant Contact (NASDAQ:CTCT) filed a statement to offer shares in a secondary Thursday. It may help sharpen the impact to the shares so they don’t end up in a longer-term slide. Thursday the stock was off 10% to a little over $15.

The filed offering may help since the 5M shares offered is less than half of what could have been offered and serves to lock additional shares up for another 90 days.

Since we originally noted CTCT as a short on November 9, 2007 there have been several updates including a report that details our concerns on February 19th. (We’re not taking new subscribers at this moment but our individual reports are available at our website.)

We can’t be sure how effective the CTCT investor presentation will be for the secondary. It probably hasn’t changed much since the IPO and the company has executed just fine so far. No doubt management will have to fend off more questions about customer growth in times of economic weakness. They will also no doubt say that in tough times successful marketing programs are even more critical.

The question is what to do now. Our fund has remained short since our original post but we are tempted to cover part of it as the offering should be completed at a clearing price fairly close to our $14 fair value estimate.

In an ideal world people would swallow the story all over again and the completion of the offer might catalyze the shares to higher price points again. This would provide another attractive entry point *and* more shares to borrow for short sales.

The essence of the story along with our concerns haven’t changed but the stock has declined from $24 to $16 and the secondary may limit further near-term declines. So it argues for trading around our short position in hopes for higher entry points off of a successful deal.