Views on New Social Media Marketing Names

Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Monday, June 04, 2012 8:28 AM
To: James Cramer
Subject: CRM-Buddy Media

Salesforce.com Signs Agreement to Acquire Buddy Media

From: James Cramer
Sent: Monday, June 04, 2012 8:36 AM
To: Nicole Urken
Subject: RE: CRM-Buddy Media

Bad for Millennial Media and ExactTarget

Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Wednesday, June 06, 2012 6:27 PM
To: James Cramer
Subject: RE: CRM-Buddy Media

With the emerging names like Millennial Media & ExactTarget, could recommend buying a basket to diversify/mitigate risk. On other hand, CRM has a rich P/E but growing quickly and has established market presence which makes it less risky way to play emerging social marketing trends despite steep valuation

From: James Cramer
Sent: Wednesday, June 06, 2012 6:45 PM
To: Nicole Urken
Subject: RE: CRM-Buddy Media

Unclear if any of the emerging players will be able to succeed. They all have to cannibalize each other to grow. CRM strong but hard as a Mad Money rec up here given it is so richly valued… that’s the problem

When it comes to the internet, we know the world is changing faster than ever before… with a focus in particular, of course, on monetization of ads as marketing shifts from analog to digital (online and mobile). As we know, there’s been much attention on the social media names (with Facebook front and center of course). And the big question mark for these companies, their valuation, and the stock upside potential is user monetization. Because of that, the emerging players that are helping mainstream companies advertise effectively on social sites like Facebook is important to the bottom line of the social media plays themselves.

However, given the slew of new names that are plays on this important trend, it can be confusing to keep track of them. Right now, many of these new companies have different focus areas. For example, ExactTarget —whose CEO came on Mad Money in May--focuses on email marketing with growth into social media marketing. On the other hand, Millennial Media is focused on mobile monetization in particular. Buddy Media, which Salesforce.com just acquired, acts more like an analytics and measurement company vs. ExactTarget that serves more like an advertising agency helping companies develop their strategy. In other words, right now these companies currently don’t compete directly. However, ultimately their focus areas will converge.

We see this whenever we see a slew of new companies enter a new market. For example, in the 2005 to 2007 period, we saw a number of Human Resources companies came public—including Success Factors (recently acquired by SAP), Taleo (recently acquired by Oracle), and Kenexa to name a few. At first, each was viewed as having its own niche such as performance marketing, recruiting, and payroll. However, fast forward five years, and the stories were all very similar. In other words, when the segments first emerged, each company had its own galaxy. As time passed, the galaxies overlapped.

This is what will happen to the social media marketing space. Given the quickly changing trends, it is important to acknowledge the risks for these new names of either cannibalization or inability to gain traction. First off, many of the emerging names in the social marketing space had big pops on their initial public offerings and have underperformed since. This reflects initial hype of market potential but subsequent limited signs of traction. Millennial Media jumped 92 percent in its market debut in March and is down nearly 50 percent in the aftermarket. ExactTarget popped 32 percent in its March debut first day of trading and is now down over 10 percent after market. Big data play Splunk—which is a derivative play on more social marketing as it sifts through the digital breadcrumbs that companies and organizations want to sift through—popped 109 percent in its first day of trading in April but is down over 15 percent in the aftermarket.

Ultimately, valuation for these companies is very high – with some of the companies, such as ExactTarget, still unprofitable—and revenue multiples steep. While some argue this is just the time to come in (before real upside is established), these remain speculative plays. If you want to step into these names, would suggest developing a basket to mitigate risk. You could also include Jive Software, which provides on-demand social business software to enterprises, and Demandware which helps companies manage their e-commerce sites, to your list.

An alternative to the speculative bet? Buy a more established player like Salesforce.com that has exposure to this social marketing growing area. Salesforce.com’s $689mm Buddy Media acquisition announced at the beginning of this week, when combined with its recent purchase of Radian6, allows the company to build marketing into its fourth multi-billion dollar potential operating unit (alongside Sales Cloud, Service Cloud, and the firm’s Force.com platform). The company’s entry into social media marketing is an investible theme while many fledging companies with minimal earnings are more questionable or risky. Of course, Salesforce.com, led by CEO Marc Benioff, is the quintessential cloud computing play-- which uses the cloud to be able to help customers organize their sales teams and allows management to figure out in real time what’s going on within their companies. You can think of Salesforce.com as the equivalent of Facebook for the enterprise. And while it trades at a steep valuation, its sights to grow from a $2mm revenue company to a $10mm revenue company with continued strong traction make it well positioned.

The bottom line: In a fledging industry like social media marketing, mitigate your risk when betting on emerging players by developing a basket. Or, conversely, invest in a more established player that has some exposure to this growth. Salesforce.com, for example, is a buy on any pullback.

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