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SAP Targets ESP + The Digital Marketing Portfolio for Every Investor

UnknownThere is a good article published last week from Fred Wilson who is a VC and principal of Union Square Ventures. He talks about companies that are valued in the billions.  It’s called the Billion Dollar Valuation Club.  Check it out.  It’s a nice segue into my article here.  In summary, over the last 10 years only 39 companies since 2003 have reached the billion dollar valuation.  He predicts many more in the next five years or so when the current business cycle matures.  Now in general economic terms, ( unless you are Milton Friedman, of course..:) every company goes through business cycles, and further every industry has business cycles or periods of economic fluctuation.  Currently the digital marketing space is seeing great returns and even more specific the digital messaging space is well into a maturing business cycle, fetching valuations as high as 12x revenues for some ESPs.  Remember the Neolane purchase by Adobe earlier this year.   Now what?

Below is a portfolio built to last through 2017, offering exceptional returns.  In the last 6 months alone, it has seen a return of 38%, almost 4X the S & P 500 index.  That’s a 76% annual return.  Every one of these companies is equipped with an Email Service Provider or Marketing Automation company except SAP, which is currently aggressively shopping for one, or maybe even two.  I’ll explain in a moment.  They have a market cap of 90B.  SAP’s strategy for growth seeks to increase it’s market leadership in the existing market categories of applications, analytics, and mobile solutions, and to position itself as market leader in new categories such as cloud solutions as well as databases and technology.  With it’s goal of building a cloud based business worth $2B by 2015, it leaves us with few choices in the ESP market space.  My prediction see’s two potential ESPs:  Responsys or Silverpop would be buyout targets.  Responsys has a market cap of almost 1B.  One school of thought is that Responsys might buy a smaller ESP first, before being gobbled up by SAP.  Acquisition targets such as ESP Act-On software might be a primary target for Responsys, since there is a history between the two companies. The other viable option is Silverpop probably valued at or near 1B, or more.  [Based on the recent Responsys earnings report, I’m increasing the valuation of both these companies and valuing them at roughly 8x earnings.  This brings the potential of a  Silverpop valuation at close to 1.6B.]  Both these companies can fetch upwards of 8-10x earnings.  Silverpop could bypass the whole IPO process and become SAPs shiny new toy, depending on the deal itself.  Understanding CEOs Bill Nussey’s thoughts, they are in no hurry to start the IPO process, but of course he has multiple investors to report to.  SAP could also decide it needs to acquire a company like Marketo, but that’s my dark horse in the race, Marketo’s growth is astounding at 62% and VCs in today’s SaaS market prefer growth over profits.  Marketo, also has a few companies in it’s universe that is healthcare related.  Healthcare is the next frontier for the digital messaging space, since they will be using the SMTP backbone which will lengthen the current business cycle.  ESPs and Marketing Automation companies that focus on the healthcare industry will sustain current growth trends of 20-40% in our industry.

Here is the Digital Marketing Portfolio I was referring to earlier.

Disclaimer:  Port25 Solutions, Inc is a technology solutions provider for these aforementioned companies: Adobe, Responsys, Silverpop, Act-On Software

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