Is Microsoft or SAP the Most Logical Buyer of Marketo?
Marketo Inc, a cloud marketing solutions platform provider, has apparently hired investment bank Morgan Stanley to explore various “strategic alternatives,” including a potential sale of the company, based on anonymous sources.
“We do not comment on speculation or rumors,” Marketo spokeswoman Stephanie Gordish said. While there’s no official comment from the company, the company’s stock, which had declined more than 25% so far this year through Monday's close, gained as much as 20.5% immediately after the rumors were floated. About 3.88 million shares of Marketo were traded today, well above the company's average trading volume of roughly 528,114 shares per day.
The San Mateo, Calif.-based company posted a $72 million loss over the past 12 months and had $95 million in cash at the end of the first quarter, which is 9% lower compared to the year earlier. Revenue, in the first quarter, increased 35% year over year to $62.2 million, with a loss of 17 cents per share.
On the other hand, the company has reduced its debt load, putting it in a more manageable position for a potential takeover. Marketo had just under $2 million in debt at the end of the first quarter of 2016, down from $4.7 million a year earlier. Marketo's weaknesses are its declining net income, disappointing return on equity, weak operating cash flow, and generally discouraging historical performance in stocks.
If Marketo is ready to sell, Microsoft or SAP may be the most logical buyers, according to Credit Suisse analyst Philip Winslow’s report. Winslow speculated that a deal by either organization could be feasible, noting the firms takout price at $44.35, which is a calculated enterprise value for the last twelve month subscription revenue multiple of 9.9, but said it could be worth anywhere between $37.03 and $51.67. However, Credit Suisse kept its price target on the stock at $30.
Why Would SAP or Microsoft Acquire Marketo?
There are two sides of the coin. The first side is why Marketo would be motivated to find a buyer? The second, how would Microsoft or SAP benefit from a potential acquisition?
First off, let’s discuss Marketo’s place in the market. The top competitors in marketing automation are Adobe, Oracle, and Salesforce. After these three giants, many people would also name the determined upstart, Marketo.
Marketo built its fast-growing business on selling to small and mid-market accounts which kept it largely off the radar of its biggest rivals for years. However, the cloud-based engagement marketing software platform provider has been focusing upmarket lately, which puts it on a possible collision course with big players such as Oracle, Salesforce, and Adobe. The game changer step in the company’s move upmarket strategy was forming an alliance with Accenture earlier this year to help get it into conversations with bigger clients.
Marketo's total customer count is around 4,500 including big names like Best Buy, Citibank, Coca-Cola, Ford, Microsoft, and Pfizer as of last year and created a list of about 100 strategic accounts where they expected to strengthen their reputation as a well-established provider of department-level services.
Last month, Marketo said first-quarter revenue climbed 35 percent from the year-earlier period to $62.2 million.
Out of 17 analysts covering Marketo Inc (NASDAQ:MKTO), 13 rate it a “Buy”, 1 “Sell”, while 2 “Hold”. This means 81% are positive.
Meanwhile, other big players in the industry have been investing in various marketing applications to enhance their customers’ digital experiences. The biggest reason why SAP is Marketo's most likely suitor, with Microsoft as another potential bidder is that neither have made a big move into marketing software to date.
Oracle, for instance, has invested $3 billion in acquiring a range of marketing applications and data services. Also in late April, the company announced updates to the Oracle Marketing Cloud to make those marketing applications work together more seamlessly. Oracle Senior Vice President Kevin Akeroyd told that a key point of differentiation for the software giant’s marketing software strategy will be in exploiting data to help marketers make their outreach “hyper-relevant and hyper-contextual.” He added: “We need to get to individualized dialogs and experiences.”
Last week, San Jose, California-based Adobe acquired Livefyre, a platform that helps brands and publishers collect, curate, and publish user-generated content, in an effort to strengthen its social offerings for brands who use its creative and marketing services. Aseem Chandra, Vice President at Adobe Experience Manager and Adobe Target, believes the acquisition will allow Adobe to keep up with the high demand for digital content: “The demand for growing content continues to increase and this is the platform that allows us to source that content in a very cost-effective way.”
Salesforce has been following a similar strategy as Oracle, blurring the line between its own Marketing Cloud and its applications for conducting better sales relationships and customer experience. In this regard, the company announced this week to the Salesforce Marketing Cloud user interface, that they will use the same “Lightning” framework as they do for their other applications.
For digital marketers, the all-in-one approach has been gaining traction, as they often find themselves utilizing an array of marketing applications and data services from various platforms. Therefore, purchasing more than one application from larger software vendors is getting more appealing. Marketo might struggle to compete with its most formidable rivals by going alone, as they are extending their marketing tools and enhancing digital experiences.
In fact, Marketo CEO Phil Fernandez has recently complained about stiff price competition from unnamed competitors which is pressuring margins and delaying contracts: “It’s clear to me that we’re seeing a new level of price competition—what I would characterize as desperate price competition coming from the large suite vendors that are our primary competitors,” said Fernandez during the company’s financial update call, following the release of its 2015 financial results. “We’re seeing them literally give away their products to try to block us from closing deals when we have won clear user preference.”