BUSINESSWEEK ONLINE : MARCH 20, 2000 ISSUE
COVER STORY

Acxiom: Online Marketing Info, a Conscience--and a Hot Stock
If privacy concerns don't slow it, this database marketing company may get a lot hotter

If you think a profitable company that has been around for 30 years with a CEO in his mid-fifties can't possibly be an Internet play or a growth stock, think again. Acxiom Corp. (ACXM), the U.S. leader in database marketing is both.

Founded by some former IBM cronies in 1969, Acxiom initially made its name in direct marketing. The Little Rock (Ark.) company's first big client: the Democratic National Party. Today, it has one of the most extensive consumer information databases in the U.S., and its biggest clients are AllState Insurance, Trans Union, and Citibank. Of the top 25 credit-card companies, 24 are Acxiom clients.

If that sounds too Old Economy to be interesting, consider Acxiom's growth prospects. Known in its industry for being on the cutting edge of database-management technology, Acxiom is in the process of introducing a new data-linking software package called AbiliTec. This product could put it at the forefront of consumer relationship management (CRM) -- the engine that's driving business-to-consumer e-commerce. The company's stock price has responded favorably to the AbiliTec launch and, at 34 15/16, is only a buck from the top of its 52-week range, untouched by the market's recent ups and downs. Its value is two-and-a-half times greater than it was just last November.

STERLING RECORD. If there's a cloud over Acxiom, it's the issue of consumer privacy that has recently come to the fore with the aggressive strategies of dot-com advertising agencies like DoubleClick. Since Acxiom is providing a lot of the data and analysis that the e-marketers of the world want, it could be vulnerable to legislative attacks aimed at curtailing the flow of sensitive -- and lucrative -- marketing info. But even here, Acxiom seems well-positioned.

Industry insiders say it has a sterling record for defending consumers' right to privacy. Even before lawmakers latched onto the issue, Acxiom spearheaded an initiative by the Direct Marketing Assn. (DMA) for mandating that medical information be passed to a third party only with the consumer's approval. "We support legislation where self-regulation does not prevent abuse," says Jennifer Barrett, Acxiom's 10-year veteran as corporate "privacy leader" (DoubleClick announced the appointment of its first privacy officer this week).

Next year, the company will have even greater leverage to affect industry privacy standards. Acxiom CEO and Chairman Charles Morgan will be the chairman of the DMA as well. "Acxiom has the ability to be a regulator in 'opt out' clauses," says Thatcher Thompson, analyst at Merrill Lynch, referring to the consumer's right to opt out of having his or her name used for general marketing purposes.

INAPPROPRIATE REQUESTS. But upholding the right to privacy is far more complicated than simply respecting opt-out clauses. "We've had to walk away from business if we felt it wasn't appropriate," says Barrett. Sometimes the inappropriate requests have come from federal government agencies, says Barrett, who declined to discuss any specifics.

The question of what makes good legislation is also complex. Laws like the Fair Credit Reporting Act and the Children's Online Protection Act lay out some important guidelines, but in some areas, Barrett says, regulation could hurt consumers more than help them.

For example, Acxiom aggregates and analyzes real estate and mortgage data it gets from deed filings at county court houses. This kind of data has some powerful effects. By appearing in one central database, it has created a relatively efficient market where home-price and mortgage-rate information can be easily found. The company recently studied mortgage rates around the world and discovered that rates in the U.S. were two points lower than in countries where this information wasn't readily available, says Barrett. "Our concern is that regulators won't recognize the value to the consumer of collecting certain data, so we are working to educate them."

Acxiom's value to investors may be more easily identifiable. One important piece of it lies in its new AbiliTec software. In its current form, AbiliTec can update an integrated companywide database much faster than any existing package, even Acxiom's last generation of software. But within three to six months, AbiliTec should be able to do it in real time. That would let a commercial Web site target offerings to a particular customer from the second he or she logged on, as well as add the latest purchase or service used by that customer to the database.

"AbiliTec allows [Web sites] to understand who their best customers are and market to them more effectively," says Robert Bloom, Acxiom's CFO. "People have been talking about doing this for a long time, but it is a huge challenge, and the implementation has always failed."

LOOKING FOR PARTNERS. All that's about to change within the next year, if AbiliTec's rollout is successful. The company has been in talks with 200 applications software providers (ASPs) and systems integrators who would be good partners to market AbiliTec in a package of their own CRM services. Acxiom already has relationships with ePiphany and Sapient, and is hoping to close deals with major systems integrators like KPMG and Andersen Consulting. The company plans to create 30 such partnerships to help it exploit the $40 billion CRM market, which is expected to hit $90 billion by 2003, according to CFO Bloom.

Acxiom has also set its sights on foreign shores to generate growth. International business now accounts for about 5% of its revenues. But at a recent Salomon Smith Barney conference, management projected that in a couple of years, it would grow to match the domestic business, which analysts expect to come in at around $1 billion for its fiscal year ending Mar. 31.

Still, there's plenty of growth to be had domestically. Over the last five years, Acxiom has had compounded revenue growth of 30%. Some of this came from acquisitions, most notably the $550 million purchase 18 months ago of May & Speh, a former competitor in the data-warehousing segment of Acxiom's business, which accounts for 60% of revenues. But in the future, growth is going to come mostly from selling AbiliTec domestically and internationally.

"DOING THE RIGHT THING." Switching from acquisition-related to internally generated growth won't change much. For the nine months ending Dec. 31, revenues totaled $702 million, up 30% from the same period a year earlier. CFO Bloom expects to report 25% revenue growth and a 15% to 20% increase in earnings per share in March, 2001. That year, analysts predict EPS will come in at around $1.15 or $1.17, compared to estimates of around $1.00 for fiscal 2000. Roughly in keeping with Bloom's estimates, Merrill Lynch's Thompson anticipates revenues of $1.2 billion in 2001. He has a 2001 target value of $40 on the stock.

Expenses related to AbiliTec's launch will prevent all the revenue growth from trickling down to the bottom line. In the first six months of fiscal year 2001, Acxiom expects to spend $30 million to $35 million on branding, training, education, and globalization of the product. "Normally, they report 25% EPS growth on 25% revenue growth," says Janet Del Giudice, senior analyst at Salomon Smith Barney. "But they're doing the right thing, they need to [invest in] the branding for AbiliTec."

If the bet on AbiliTec works out, Acxiom should be able to break away from its Old Economy valuation of three-and-a-half times revenues. "They've got a vision, and they're executing it," says Del Giudice. Once investors buy into that vision, the stock will likely have nowhere to go but up.

By Margaret Popper in New York

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