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Email Service Provider SMTP reports 70% revenue growth with 50% operating margins

|Includes: Constant Contact, Inc. (CTCT), ZIXI

·      Revenue growth at this “micro multi-national” continues to accelerate with 70% growth. Quarterly revenues are now just over $1.1M. Operating margins are a stunning 50%.


·      The company is poised to exceed our estimates for the full year 2011 and push us to increase estimates and our intrinsic valuation estimate.


·      Ironically if SMTP were a private company it would be trading at a much higher valuation on private share exchanges like SecondMarket and SharesPost. VC funded startups in this space are getting funded at higher valuations and are years away for profitability.


·      In addition to strong operating results SMTP has acquired 4,000 IP addresses that are the foundation of successful email delivery. This will allow them to support thousands of new customers.


·      Social marketing and behavioral commerce trends led by companies like GroupOn and Livingsocial are adding to the already high demand for reliable email delivery services. Although message volumes are also expanding, email remains the single best common denominator for basic communication.


·      We continue to see this market evolve in a similar fashion as the content delivery space and expect that over time most internet infrastructure service providers (like Amazon and Rackspace) will want to add email delivery networks to their services.


·      Investors looking for a rapidly growing, highly profitable micro-capitalization internet infrastructure service provider should take a close look at SMTP.


·      The company recently completed a “direct to market” IPO process and is just now accessible to pubic investors. Our intrinsic valuation (IV) remains $3 per share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.