IPO madness: Constant Contact debuts on the market
Posted
Oct 03 2007, 12:50 PM
by
Kim Peterson
A small Massachusetts company called Constant Contact is having a great IPO today, raising $107 million and seeing its shares jump above the initial $16 price. Last time I checked, shares were well over the $29 mark.
All this for a e-mail marketing company whose software lets you create, send and track e-mail messages.
Constant Contact has about 130,000 customers, and two-thirds of them have fewer than 10 employees, according to a regulatory filing. Customers pay a monthly subscription fee of between $15 and $150, and the company's 2006 sales were $27.6 million. The company is not profitable.
Even Constant Contact must be shocked by this turnout. Executives had only expected the IPO to price between $12 and $14 a share.
Is this really worth a $107 million IPO? E-mail marketing software is such a tired notion. One recent study showed that e-mail marketing willl grow at only half the rate of overall online ad spending. I don't doubt that e-mail marketing can be effective (as long as those e-mails don't get snagged by spam filters) but for Constant Contact to get this kind of market reception signals some tech IPO madness out there.
Need more proof? Don't look any farther than VMware, the hottest IPO of the year. VMware is a virtualization company that essentially makes computer servers run more efficiently. VMware's stock debuted in August at $29 a share, and today is trading at around $93. Its market cap is $35.7 billion.
Network storage company EMC owns 86 percent of VMware, but its market cap is only $44.8 billion. These valuations are bizarre, but may create some opportunity for investors. If you want in on VMware, buy EMC. As for Constant Contact? Don't buy in to the madness.
