ExactTarget stock sluggish 1 year after IPO, but analysts bullish

A year after email marketer ExactTarget Inc.'s $161 million initial public offering, the stock hasn't gained the momentum analysts expected.

The shares closed Thursday at $22.76, better than the $19 at the initial public offering, but well below the $25.11 reached before the end of the first day of trading. The price slipped to $20 in June and has hovered in the high teens to low 20s since.

But all 12 stock market analysts following the company maintain their optimism, citing ExactTarget's record $292.2 million revenue in 2012, $22.7 million cash flow, $116.5 million spent on acquisitions, and $54 million invested in research and development.

Seven analysts have “buy” recommendations for the company and five are “strong buy.” On average, they forecast $31.67 per share within a year.

“ExactTarget is a well-managed company, growing at hyper rates, but we often get push back from investors who question the sustainability of e-mail marketing, where the largest portion of the company’s revenue comes from,” JPMorgan analyst John DiFucci wrote in a note to investors.

Competitors exacerbated concerns about the industry because of their own technological or execution problems, DiFucci continued: “On the contrary, we remind investors that e-mail marketing alone is a very large market of about $5.5 billion today [including transactional e-mails], growing at close to 20 percent a year—and this is likely to be the case for the next several years.”

Jeff Houston, an analyst for Barrington Research, said previous market reports—projections of 10 percent to 12 percent industry-wide growth in e-mail marketing—have confused investors because they did not include key points that are critical for ExactTarget.

The lower estimates don’t include international e-mails or “transaction-type e-mails,” such as banks alerting customers about account overdrafts. The projections also missed ExactTarget’s growing base of non-e-mail marketing products, Houston said, which the company anticipates accounting for 20 percent of its business in 2013.

Despite the bullishness on Wall Street, profitability has evaded ExactTarget since 2008.

Expenses tied to the company’s growth strategy let to a $21 million net loss last year.

During a Feb. 21 conference call with reporters, Chairman and CEO Scott Dorsey noted ExactTarget’s hefty investments last year as it reached into foreign countries, added to its portfolio of services and increased employment from 1,133 to 1,673.

The willingness to spend more now than its competitors will push ExactTarget ahead in the future, RBC Capital Markets analyst Robert Breza said in a March 12 note to investors.

“The company currently spends [approximately three to four times] the dollars on research and development, products, and infrastructure versus its nearest competitor,” Breza wrote. “We believe this has created a significant barrier to entry and leaves competitors in the position of having to play catch-up.”

Also, ExactTarget dipped into its IPO proceeds and bought two companies: marketing automation firm Pardot LLC for $95.5 million and “predictive analytics” provider iGoDigital for $21 million.