Tech IPO Constant Isn't Worth Its Price Tag
Nearly every week seems to mark the birth of at least one new tech IPO star, but a close look at recent debutante Constant Contact (CTCT) shows that not all are burgeoning with the same promise.
Constant Contact has spent years building up a strong business and market footing in an overlooked sector. Its reliance on a Web-based, on-demand product seems to resonate among not-so-tech-savvy clients who want an easy way to keep in touch with their own customers.
Like iMergent (IIG), whose stock has been volatile over the past couple of years, Constant Contact offers a hand-holding relationship to small companies, from wine stores to individual "power sellers" on eBay (EBAY), allowing them to use a browser to send email updates and newsletters to contact loyal customers.
And that, combined with the popular on-demand model, seemed to be enough to drive the company's stock to $30 the day after its debut last week, nearly double its offering price of $16. It's only the latest in a host of tech companies to have gone public since August and see their stock rise more than 50% on the first day.The stock was trading recently at $26.19, off 2.8%. But there are some factors that make the high post-IPO valuation seem puzzling: Despite its lengthy history, the company is still posting losses, and rather than benefiting from the economies of scale that other on-demand companies are seeing, some costs are rising.
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