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What's Behind Responsys' (MKTG) Rally?

NEW YORK (TheStreet) -- Responsys Inc (MKTG) is enjoying a double-digit rally during Friday's trading session, adding 38.6% to $27.05 by midday.

Demand for the enterprise software developer is high after it announced it accepted an acquisition offer from Oracle (ORCL - Get Report). The software giant will acquire Responsys for $1.5 billion, or $27 a share, in an all-cash offer. The price is at a 38.3% premium to the company's Thursday close of $19.52.

The addition of Responsys adds cloud marketing expertise to Oracle's operation, the companies said in a statement. The acquisition will allow the latter to extend operations to better serve its business-to-consumer and business-to-business software offerings.

"The Oracle Marketing Cloud is now the only platform to unite enterprise-class leaders in these historically distinct marketing-automation fields," said Oracle President Mark Hurd in a statement.

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The deal has been approved by both boards and is expected to close in the first half of 2014.

Despite the acquisition, TheStreet Ratings team rates RESPONSYS INC as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate RESPONSYS INC (MKTG) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 132.2% when compared to the same quarter one year ago, falling from $3.47 million to -$1.12 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, RESPONSYS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $4.70 million or 5.60% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • RESPONSYS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, RESPONSYS INC reported lower earnings of $0.15 versus $0.18 in the prior year. This year, the market expects an improvement in earnings ($0.16 versus $0.15).
  • The gross profit margin for RESPONSYS INC is rather high; currently it is at 54.84%. Regardless of MKTG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MKTG's net profit margin of -2.16% significantly underperformed when compared to the industry average.

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