Constant Contact Delivers Profits at a Bargain Price

NEW YORK (TheStreet) -- Instead of being last on the train to buy Twitter (TWTR) Facebook (FB) and LinkedIn (LNKD), you may want to consider another social media company with explosive growth and a valuation to justify its price.

Email marketing provider Constant Contact (CTCT) is filling shareholders' inbox with cash.


CTCT Revenue (Quarterly) Chart

Constant Contact is a leader in the email space whose shares, at $28, are up near 124% for the past 52 weeks. Unless you haven't received an email since Y2K was a concern, you've received an email through this company's system. Constant Contact is expected to report May 1 but shareholders received the best email surprise Tuesday when the company released a preliminary first-quarter indicating faster growth than investors predicted.

According to the company's press release, in the first quarter the revenue range is now $78.7 million to $78.8, a 15% increase above previous guidance. CEO Gail Goodman stated the company is growing its customer base, average revenue per user and customer retention numbers.

If you ever trekked to the mall area during the afternoon of Black Friday, you know what a challenge it is to find value after previous shoppers have already picked the deals clean. It's the same feeling I have when examining many of the social media stocks. The momentum plays are falling to reality and others don't appear to have a long runway for growth.

Where's the edge buying yesterday's hottest stock? Investors willing to look at rapidly growing companies (but ones that are not so large the economies of scale are an impediment) can probably make a lot more money than buying what everyone else has already bought.

Compared to Facebook's $155 billion, Twitter's $24 billion and LinkedIn's $21 billion market cap, Constant Contacts' relatively small $877 million capitalization appears small. But that's to your advantage.

In order for Facebook's shares to triple, the company would have to approach the valuations of Apple (AAPL) and Exxon Mobil (XOM). It's possible Facebook may continue to grow, but considering it's already a top property with a current earnings multiple above 40, don't count on it soon.

Twitter's weekly price chart tells you all you need to know about trying to catch falling knives on a price dip. After trading above $70, you can bet some stepped up to buy at $60 and others at $50. Why put yourself in that position where you have to wonder if the light at the end of the tunnel is an oncoming train or not?

By traditional standards, Twitter isn't cheap yet, so a buy at $40 isn't a value buy. Not with a forward earnings multiple near 200 anyway. LinkedIn's numbers are more attractive than Twitter's from my seat, albeit the stock pattern resembles Twitter's recent decline.

Constant Contact executes amazingly well for a company this cheap based on earnings. Revenue has doubled in the last five years, and earnings surpassed estimates every quarter for the last six quarters. Earnings met or beat estimates 14 out of the last 16 quarters.


CTCT Revenue (Quarterly) Chart

Constant Contact is growing revenue in 2014 through offering more related products for customers as well as bundling services, another catalyst for increasing its average revenue per user.

The company offers three primary plans called Basic for $20/ month, Essential starting at $45/ month, and Ultimate for $195/ month. The low-cost, easy-to-understand plans bring customers into the ecosystem while the suite of products monetizes them.

The number of customers is accelerating. During the last conference call, Goodman stated that every quarter in 2013 was an improvement over the same period in 2012. The company added 195,000 new paying customers, for a total of 595K at the end of 2013.

The average analyst target price for Constant Contact is $34.80. With short interest above 5%, investors will want to monitor changes to know if short-sellers turn up the warning signals. Otherwise, the current 5.4% of the float short could turn into fuel to propel the stock higher as shorts get squeezed and rush for the exits.  

If you want growth in the technology sector that is likely to continue growing, Constant Contact delivers.

At the time of publication the author had no position in any of the stocks mentioned.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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