The valuations of email marketing companies have come a long way. Bronto was founded in 2002, in the midst of the dot com bust, when the valuations on technology companies were not much more than the values of the computers in their offices. We were immune to fluctuations in the market since we grew organically and were very shrewd with very little cash. This discipline let us grow while others were stumbling.
Fast forward a few years and the world has changed. EmailLabs, one of our competitors, was purchased in late-2005 on a 2x multiple — $20mm for roughly $10mm/year in revenue. Last year, VCs told me that they valued email marketing companies like Bronto at multiples of 2 to 4x revenue. More recently, the multiples have been closer to 4 to 6x. Email marketing / software-as-service companies are definitely en vogue and the Constant Contact furthers their popularity even more.
Constant Contact went public with a valuation of 9x revenue and now is sitting somewhere closer to 20x. In undoubtedly, they are valued at a premium because of their dominance and story with the small business market, but that’s a big premium. Of course, sometimes the market as a whole gets a little wacky, but their success, assuming it sustains, will certainly swing up the valuations for everyone in the space.
Will it last … probably not. Bubble-nomics never do. But, I am sure a number of companies will try to strike the iron while the iron is hot. Exact Target is my top guess for a number of reasons:
- Significantly VC funded for a while so there’s pressure to sell;
- Email marketing / software-as-a-service provider which can be easily comp-ed against Constant Contact;
- Roughly $40mm in revenue just like Constant Contact so the comp plays well for the investment bankers here too.
I have to imagine that Exact Target is finalizing their S-1 right now — they would be crazy not to.