The wait is over: Marketing automation is now a publicly traded technology. Eloqua (Nasdaq: ELOQ) went public on August 2 – the first such firm to do so – issuing eight million shares at an opening price of $11.50 per share.
The initial public offering (IPO) places Eloqua’s market capitalization at $368 million, or 4.4 times its sales of $85 million in the 12 months through June 2012, according to data compiled by Bloomberg. The Wall Street Journal reported that Eloqua’s revenue increased 42% to $45 million this fiscal year, although the company reported a net loss of $5.5 million, compared with a loss of $3.5 million in the first half of the prior fiscal year.
Discount Pricing Strategy Pays Off
Industry reaction to Eloqua's IPO performance was almost uniformly upbeat. “Eloqua opened nicely and saw an immediate lift,” said Chris Golec, Founder & CEO of Demandbase. “They were conservative and priced at a discount to other SaaS software companies. That helped them get a nice boost … in their first week, which should, in turn, get more investor attention. Pricing at a discount was likely effective in helping them be valued more on their long-term prospects than at their losses to date.”
"The Eloqua IPO is great for them and for the marketing automation sector,” said David Cummings, CEO of Pardot. “With their IPO, more analysts and press will cover the market and help generate more awareness – all things that will help all the leaders in our market."
“There are many converging business and technology factors influencing change in the marketing technology space, factors that are also driving opportunities from a merger and acquisition and IPO perspective,” said Stephane Dehoche, President and CEO of Neolane.
“From an increasing emphasis on the business and technology investment priorities for CMOs, to helping organizations that are grappling with emerging communications channels and customer touch points that are fueling Big Data analytics needs, this space is experiencing a significant evolution. Eloqua’s IPO follows directly on the heels of Google’s Wildfire acquisition,” Dehoche noted, referring to the search company's approximately $250 million purchase of social marketing management provider Wildfire in late July.
New Territory For Tech Investors
Marketing automation and CRM sector players are no doubt hoping that Eloqua’s IPO will draw greater business attention to the sector, translate that attention into a friendly investment climate and, ultimately, into more clients needing implementation help.
In spite of this upside, some industry experts point out that the marketing automation, revenue performance management (RPM) and even CRM industries are not yet well understood by investors. There are also financial hurdles to overcome. For example, while Eloqua has achieved moderate sequential quarterly revenue growth, the company has also generated consistent operating losses. The company's subscription revenue has varied between 84% and 93% of its operating costs on a quarterly basis, although this gap has closed over time.
“As the first company going public in this space, investors have very little to compare it to and have very little experience in the category,” said Atri Chatterjee, CMO, Act-On. “As a result, investors react to short-term symptoms and don't factor in the longer-term horizon.”
“There could also be ‘handcuffs’ placed on the company because promises it may have made to investors can be a problem,” Chatterjee added. “As a result of these promises, the company might be limited by how much [IPO money] it might be able to spend to take advantage of new developments in the market."
Going forward, according to industry observers, Eloqua needs to do several things to increase share value:
Build a sustainable company.
Innovate around a product set that meets a real market need.
Ensure customers are satisfied and wildly successful.
Educate and evangelize the long-range vision for revenue optimization.
Operate pragmatically and within their own financial envelope.
Deliver to the types of growth rates and balance sheets the public markets want.
Gauging The Market Appetite For Marketing Automation
Marketing automation leaders say that additional investments should be directed toward furthering technology innovation that improves cross-channel marketing effectiveness. That includes new products and services geared towards influencing customers' sales funnels, generating higher quality leads and increasing automation across the customer lifecycle.
“How Eloqua’s IPO ultimately stacks up against others in this space will be telling, not only in terms of investors’ appetite for marketing technology, but also how these technologies are perceived in terms of their impact on the bottom line,” Dehoche added.
According to Golec, the Eloqua IPO will also create new opportunities for implementation consultants and other third parties who rely on a healthy marketing automation technology ecosystem.
“Companies have a pain point around marketing efficiency, yet we are at the front end of the market adoption of this type of solution, he added. “[Eloqua’s] successful debut should attract further investor attention to the segment, and help accelerate market penetration.As Ajay Agarwal of Bain Capital Ventures pointed out in a recent article, there is tremendous potential in marketing-focused software.”
It can be deduced that Eloqua’s new visibility will generate a clear need for technology to help companies scale revenue faster and more efficiently. But experts say that this type of IPO only makes sense if the company has sound fundamentals and a proven track record of growth.
“That takes a lot of work, particularly with SaaS businesses,” said one market leader in the marketing automation space. “Many VCs are recognizing the segment potential, so there is capital available for strong companies. I don't think you'll see companies scrambling to file just to get out to the public markets.”
Nevertheless, analysts and marketing/CRM vendors alike believe this particular IPO will strengthen the marketing and services ecosystem overall, and that Eloqua's customer base will most likely continue to expand and grow. The upshot is that companies that use a revenue performance management approach are getting great results, which should mean that their peers will at some point jump on the RPM bandwagon.
“Importantly, marketing automation isn't just about the software, Golec added. “It is really shifting your approach to marketing and sales integration, and using data to make smarter investments and grow revenue. The support around a continuous improvement process is ongoing."