ExactTarget has remade itself since last IPO bid

Things change so fast in the technology world that the prospectus ExactTarget Inc. filed four years ago when it first sought to go public reads today almost like something from the floppy-disk era.

Back in 2007, here’s how the company described its business: “Our on-demand software enables our clients to easily create, target, deliver, track and manage permission-based email marketing communications.”

That’s a solid enough business, to be sure. And no doubt ExactTarget would be a public company today had the financial crisis not thrown its initial-public-offering plans off the rails.

But the business model ExactTarget is touting now, as it makes a new run at an IPO, has far more sizzle and staying power—thanks to the company’s aggressive push beyond e-mail into even more personalized and interactive forms of digital communication.

Here’s how ExactTarget casts itself today: “We are a leading global provider of cross-channel, interactive marketing software … solutions that empower organizations of all sizes to communicate through the interactive channels they use most—email, mobile, social media and websites.

“Our solutions provide marketers with a broad and powerful suite of integrated applications to plan, automate, deliver and optimize data-driven interactive marketing campaigns and real-time communications to drive customer engagement, increase sales and improve their return on marketing investment.”

ExactTarget filed its preliminary prospectus for the IPO on Nov. 23, seeking to raise $100 million. The company hasn’t determined how many shares it would sell or at what price—crucial issues in determining whether investors are likely to salivate over the stock.

But analysts and bloggers so far see a lot to like, including:

• A strong record of revenue growth. Revenue rose from $72 million in 2008 to $134 million in 2010 and $148 million through the first nine months of 2011.

• A formidable, diverse customer base. The company has 4,600 clients—from WellPoint to Microsoft—and no single customer accounts for more than 5 percent of revenue.

• A target market that’s growing explosively. Massachusetts-based Forrester Research estimates that U.S. spending on e-mail, mobile and social media marketing will increase from $4.8 billion this year to $15.7 billion by 2016. ExactTarget added in its prospectus: “We believe the addressable market outside the United States presents an even greater opportunity.”

ExactTarget’s biggest blemish, observers say, is its red ink. The company posted operating profit of $6.5 million in 2008 but has had operating losses since, including $18.1 million through the first nine months of 2011.

The losses coincide with a huge increase in R&D expenditures aimed at providing ever-improving interactive marketing solutions for its customers. R&D costs rose from $10 million in 2008 to a projected $40 million this year. The heavy investments, ExactTarget said in its filing, “have led to strong business momentum.”

But David Menlow, president of IPOfinancial.com in Millburn, N.J., said ExactTarget will need to justify the hefty R&D costs to prospective investors and persuade them the company is on a path to profitability.

The topsy-turvy stock market also poses a challenge, observers say. November saw a spate of high-profile IPOs, including Angie’s List and Groupon. But those firms and many other newly minted public companies now have sagged below their offering prices.

Yet Menlow said ExactTarget’s focus on the interactive marketing business will get investors’ attention. And he noted the company’s lead underwriters include two heavyweights—J.P. Morgan and Deutsche Bank Securities—a big upgrade from the firms leading the original deal.

Accounting for culture

ExactTarget says one of its key strengths is its “corporate culture committed to client success.” In its prospectus, the firm says, “Named for our primary brand color, our ‘Orange’ culture reflects our employees’ energy, passion and focus on client success and is widely regarded as one of our greatest assets.”

That might sound like pablum. But the company notes that an outside firm surveyed its employees and found that 99.4 percent were proud to work at ExactTarget and 98.3 percent would recommend it to a friend as a good place to work.

In addition, in a blog post this fall, an influential industry analyst said she believed there really was something unique about how ExactTarget does business.

“Maybe it’s because I grew up in Nebraska, but I find this Indianapolis-based firm chock full of some of the nicest people in the marketing technology space,” wrote Shar VanBoskirk, principal analyst at Forrester Research.

“And since most clients I talk to are looking to switch email vendors because of poor customer service, I think how a vendor handles its people relationships—with clients, with analysts, with employees—matters as much as its software.”•