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Email marketer's IPO hypes skyward


Constant Contact (Symbol: CTCT) recorded one of the best initial public offerings of the year after underwriters priced the company’s shares at $16 last night. The money-losing email marketing specialist started trading at $26, hit a high over $30 and closed at $27.64. The 73% opening day gain looks to be the third best for the year so far after athenahealth’s (ATHN) 97% rise and VMWare’s (VMW) 76% jump, according to IPOHome.com.

It’s hard to get too excited about Constant Contact, which appears to reside in microcap land with a market cap of under $800 million. It doesn’t meet University of Florida professor and all-around IPO guru Jay Ritter’s standard for $50 million of annual revenue pre-IPO. Revenue almost doubled in the first half of 2007 to $21 million but so too did the company’s net loss, to over $5 million. With just 6 million shares available, it’s easy to see how a little IPO-induced hype got such a small cap’s shares going stratospheric.

It’s also hard to see any barriers that prevent competitors from horning in on Constant Contact’s business model, which features gross margins of over 70%, if things continue going well. I hate to see such a lengthy and detailed list of potential competitors as Constant Contact provides in its SEC filings.

“Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their products,” the company says in a three-paragraph risk disclosure statement that goes into more detail than the average boiler plate inclusion.

The again, Jon Ogg over at 24/7 Wall Street thinks the company may be an acquisition candidate down the road. The company belongs amongst those stocks on Ogg’s small-cap Internet watch list, he writes. Those are companies that “are not active takeover candidates or active restructuring stocks today, but these are the smaller internet stocks we think could easily become prey under the right circumstances.”


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