Marketo: a post IPO Summary

July 19 2013

The Battle Road IPO Review is a monthly screen of more than 150 growth-oriented initial public offerings of the last six years. Each month we add new stocks to our Battle Road IPO Review coverage universe as companies come public and consensus estimates begin to emerge. Our monthly analysis features companies in the following six sectors: software, internet, hardware, consumer, business Services, and health sciences and healthcare IT. Each month we update our Exploration List, which is a long-oriented sub-set of the coverage universe, which we determine based on qualitative and quantitative inputs.

New to our software sector universe this month is Marketo (NASDAQ: MKTO), a developer of cloud-based marketing software, including email marketing, lead management, social marketing, and analytics. Founded in 2006, based in San Mateo California, the company recorded revenue of $58.4 million in 2012, an increase of 80 percent over 2011. During the same period, the company’s operating loss widened significantly, from $23 million to $34 million.

On May 21, 2013, Marketo issued six million shares at $13 per share in an IPO led by Goldman, Sachs & Company, Credit Suisse Securities, UBS, Canaccord Genuity, Raymond James, and JMP.

Marketo sells its software on a subscription basis, and counts more than 2,300 customers. Customer concentration is low as no single customer accounted for more than two percent of sales in any of the last three years. Marketo targets the small and mid-sized business (SMB) market, which it defines as companies with less than 1,500 employees. In the most recent year, 80 percent of sales came from the SMB market, while the remainder came from companies with employees exceeding 1,500. Representative customers include CenturyLink, Citrix, Gannett, GE, Moody’s, Panasonic, and Symantec. The company has overseas sales offices in Dublin and Sydney. A bit less than 13 percent of sales came from outside the US in 2012.

Nearly 90 percent of sales come from software subscriptions and support revenue. Pricing is based on various customer usage metrics, which can include the number of leads in a customer’s database, as well as the authorized number of users. Subscriptions range in length from one quarter to three years.

In the first calendar quarter of 2013, Marketo’s revenue rose by 80 percent to nearly $20 million, yet its operating loss increased by nearly 50 percent from $23 million to $34 million. Part of this is due to the fact that the company’s gross margin in the most recent quarter was just 57 percent, partly due to losses from professional services.

To see how Marketo screens against its software peers within the Battle Road IPO Review software coverage universe, please contact: info@battleroad.com.