NEW YORK -- Shares of Constant Contact Inc. plunged to their lowest price in four years Friday after the online marketing company struggled to convert trial users into customers in the third quarter.
THE SPARK: Constant Contact reported its quarterly results Thursday. Its net income surpassed Wall Street expectations and Constant Contact raised its annual earnings guidance. Revenue was slightly weaker than expected and the company lowered its revenue forecast. However the company said retention rates, or the rate at which trial users decide to stick with Constant Contact, was lower than expected.
THE BIG PICTURE: The Waltham, Mass., company said more customers tried its products, but conversion of trial users into customers was lower than in past quarters. The company said it added about 35,000 new unique customers during the third quarter, compared to 45,000 in the second quarter of 2012.
Chairwoman and CEO Gail Goodman said the company struggled to handle trial customer conversions along with sales of multiple new products and its recent acquisition of business listings manager SingePlatform at the same time.
"We're in the midst of a significant expansion of the Constant Contact product suite," she said. "The combination of launching and managing multiple products at various stages of growth and the time and attention required in both evaluating and integrating SinglePlatform absorbed leadership bandwidth and resulted in less execution focus and discipline."
THE ANALYSIS: Stifel Nicolaus analyst Brad Reback downgraded the shares to "Hold" from "Buy" and removed his price target of $28 per share. Reback said the company gained about 10,000 fewer subscribers than he expected, and said it lowered its revenue estimate for SinglePlatform in 2013. He said Constant Contact is trying to do too much at once.
SHARE ACTION: Constant Contact shares dropped $4.71, or 27.7 percent, to $12.32 in afternoon trading. That was their lowest price since late 2008. The shares have lost 40 percent of their value over the last six months.