Today’s recommendation, from Canaccord Genuity analyst Richard Davis, is a 21st-century marketing company. ExactTarget, Inc. (ET) helps companies reach potential consumers through e-mail, text messages, social networks and other interactive channels. Richard Davis explains the investment case below.
“Even adjusting for today’s fashion for conservative forecasting by analysts,ExactTarget, Inc. (ET) posted strong March quarter results. We continue to believe that the firm has several quarters of open field growth prospects in its core North American email market. If we are correct, this growth should carry the stock higher, roughly in line with the firm’s revenue growth.
“Longer term, we will look for ET to increase its social media functionality and revenue mix in order to enable the firm to emerge as a leading marketing automation solutions provider.
“We believe ET shares are attractively valued at current levels.
A solid upside in first quarter as a public company
“ET reported March quarter revenues and Adjusted EBITDA of $64.1 million and $3.0 million compared to our estimates of $59.0 million and a loss of ($2.8 million). Revenue growth was 45% in the quarter. ET delivered operating cash flow of $3.6 million, which was well ahead of expectations for a ($6.6 million) loss.
“International revenues accounted for 17% of total in the quarter, which is up from 14% in C2011. Dollar-based renewal rates were once again better than 100% in the quarter.
“Well-known clients such as JetBlue and Staples engaged the firm for social-engagement tools on a standalone basis in the quarter, exemplifying that email is not necessarily the cornerstone of sales.
Outlook
“C2012 revenues guided $12 million above consensus, EBITDA profitability seems likely. We have increased our C2012 revenue and Adj. EBITDA estimates by $12 million and $9.5 million respectively to $272 million (+31% y-o-y) and $7.0 million (2.6% margin). We continue to believe that these estimates likely represent a base case scenario and that ET could post 35%+ growth.
Valuation and price target
“Our unchanged $32 price target is based on a 5.9x EV/revenue multiple based on our C2013 estimate of $325 million and gives consideration for approximately $190 million in prospective net cash.”
- Richard Davis, CFA, Canaccord Genuity, May 11, 2012