FBR Comments on Impact of Constant Contact/Endurance Deal in SMB Space (CTCT) (EIGI) (WWWW) (WIX)
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FBR & Co. is out with commentary on the Constant Contact (Nasdaq: CTCT) and Endurance International (Nasdaq: EIGI) deal, which was announced ahead of the opening bell Monday.
Analyst Samad Samana commented, We believe this deal has several implications for the SMB web presence and online marketing space and will impact companies we cover -- Web.com (Nasdaq: WWWW)(Outperform) and Wix.com (Nasdaq: WIX) (Outperform).
The analyst continued, We believe the 28 million-plus U.S.-based SMBs and the many millions more of international SMBs spend billions of dollars annually on web presence and online marketing products and services. We see this as a large and growing market that is ripe for consolidation as SMBs are increasingly looking at one vendor for a full suite of products and services with which to manage their online business. In our opinion, consolidation would be a positive for the industry, as we think it would lead to more price discipline even for commodity offerings, less churn, reduced customer acquisition costs, and economies of scale. As it relates to our coverage, we view WWWW as an attractive takeout candidate for a larger company looking to immediately establish scale in this market (ex: Google and Yahoo) and we think WIX's best-in-class DIY solutions and rapidly growing subscriber base are attractive for an established web presence and online marketing solutions provider that wants to bolster its solution set (ex: GDDY and WWWW).
Samana also sees the deal validating the cross-sell and upsell model, commenting, EIGI stated that cross-selling CTCT's higher dollar offerings (~$47/mo. customer ARPU) into its low ARPU installed base (~$14/mo customer ARPU) is one of the key benefits of the transaction. To us, this represents a broader strategic shift within the industry where market leaders of commodity offerings are trying to find higher value products and services to sell to drive growth and improve customer lifetime values. We believe this validates the cross-sell and upsell model, one that WWWW aggressively began pursuing with its 2010 and 2011 acquisitions of Register.com and Network Solutions, respectively.
Samana also sees Constant Contact and WWWW's recently announced partnership as potentially in trouble. The analyst said, that combined its online services with CTCT's email marketing product. At this point, it is unknown what will happen once EIGI, a WWWW competitor, completes the acquisition. While losing a partner is not a positive, we note the partnership was important disclosures can be found on very early in its ramp, Web.com has a large and growing list of partnerships and CTCT was just one, and there are other potential vendors that WWWW can partner with for email marketing.
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