A New Member of the Cloud Revolution

10/31/2012 7:45 am EST

Focus: STOCKS

Rob DeFrancesco

Founder, Tech-Stock Prospector

Not exactly a newcomer to the sector, this company is a newcomer to the stock market and has some very good clients and unique technologies that may prove to be very good for investors, notes Rob DeFrancesco of Tech Stock Prospector.

It took a while for the buzz to build on Eloqua (ELOQ), a provider of cloud-based revenue performance management (RPM) solutions, after the company went public in early August. The IPO priced at $11.50 (within the expected range) and opened just 4% higher at $12.02.

The stock traded above $15 in August, then picked up momentum in September, pushing through the $20 level late in the month. The post-IPO high of $22 was reached in early October.

This is a small company (the market cap is below $700 million) with relatively modest daily trading volume, so the shares carry a high level of volatility risk, as they are subject to being whipsawed by big buyers or sellers.

The company’s RPM solutions automate, monitor, and measure marketing and sales initiatives in B2B environments. Marketing and sales professionals use Eloqua solutions to move prospective buyers more efficiently through the sales funnel; identify and predict revenue drivers; and provide insights about marketing and sales programs to senior management.

The one key aspect of Eloqua’s business is lead management, which involves pulling together unqualified sales leads from various sources (everything from Web sign-ups to direct mail campaigns and social CRM applications) and then getting these leads qualified, scored (prioritized), and nurtured to hopefully be converted into future revenue events by direct sales forces or channel partners.

Lead nurturing is an interesting concept because it involves working with qualified sales leads that are not yet ready to buy. A bit of an art, lead nurturing first requires the marketing team to score permission to stay in contact with the prospect. Then the perfect amount of sufficiently valuable content must be delivered to keep the prospect engaged without being turned off. Eloqua’s lead-nurturing solution automates this entire process.

Eloqua’s revenue last year rose 40% to $71 million, while revenue for the first six months of 2012 advanced 42% to $45 million. Eloqua solutions, priced starting at $2,000 a month for up to ten users, are delivered as a service under one- or two-year contracts.

The company has more than 1,100 customers (top verticals include technology, financial services, and manufacturing) and generates about 89% of its sales in North America. While Eloqua does have some smaller customers, it mainly operates in the enterprise and mid-markets because these sectors have lower churn rates. Enterprises (customers with sales of at least $300 million) represent about 62% of Eloqua’s revenue.

The company has a diversified customer base, with its ten largest customers accounting for less than 10% of total revenue. In the mid-market, Eloqua competes mainly with privately held Marketo and Neolane, while its enterprise competitors are the big guns—Teradata’s Aprimo unit and Oracle’s Siebel CRM offering. Eloqua does not compete directly with the publicly traded e-mail marketers (ExactTarget, Responsys, and Constant Contact) because these companies are more B2C focused.

Eloqua last month made a savvy move when it strengthened its relationship with Salesforce.com (CRM), announcing the integration of Salesforce’s Chatter enterprise social network into the Eloqua platform. With Chatter inside Eloqua, sales and marketing organizations can easily share knowledge and resources in a timely manner.

This new social intelligence layer enables users to collaborate on lead nurturing and see campaign performance updates in real time. Part of the reason why Eloqua shares were so strong in September was the attention the company received that month at Salesforce’s big Dreamforce user conference in San Francisco, which attracted more than 90,000 registered attendees.

Salesforce, an Eloqua customer, knows the product. And with Salesforce so totally focused right now on building out its Marketing Cloud, Eloqua was wise to hitch its wagon to this SaaS giant.

As with any small-cap company, Eloqua’s management team is one of its core assets. Joe Payne, who has held the CEO spot for more than five years, was formerly CMO at MicroStrategy (MSTR) and held various marketing roles at both Coca-Cola (KO) and Procter & Gamble (PG).

Alex Shootman, recently named president, served as Eloqua’s chief revenue officer since 2009, and prior to that was senior VP of worldwide sales and services for Vignette, which was purchased by Open Text (OTEX). CMO Heidi Melin, who joined Eloqua in May, held the same position at Taleo, Polycom (PLCM), and Hyperion Solutions.

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