How This Company Could Become the Next Salesforce

According to eMarketer, in 2012 marketers spent $37.31 billion on digital advertisement. This number is set to rise in the next decade, as companies shift their ad budgets from newspapers, TV, and other traditional channels, to mobile and social apps, where users are more active and engaged.

This is very good news, not only for companies that sell ads -- such as  Facebook or Google -- but for online marketing companies, as corporations pay thousands of dollars per month to have their online marketing activities monitored by well-known experts, such as Salesforce (NYSE: CRM  ) and Oracle (NYSE: ORCL  ) . 

Marketo  (NASDAQ: MKTO  )  is a promising company in the online marketing space. The company's revenue is growing very quickly. What makes this company so special? Considering both Salesforce and Oracle are spending billions to make their online marketing business stronger, is Marketo a good investment?

Source: Marketo Website

Marketo isn't afraid of big competitors
Marketo provides cloud-based marketing software that helps companies to acquire new customers, conduct marketing campaigns, and analyze and measure the result of such activities.

Salesforce, which was originally a set of cloud-based tools for managing customer relations, also provides online marketing services. It bought ExactTarget, a digital marketing platform with strong focus on email marketing for $2.5 billion, and Radian6, which focused on social media, for $340 million to strengthen its marketing solutions portfolio.

As the largest software-as-a-service company with a $32 billion market valuation, Salesforce has more resources than Marketo, and is able to dominate the market for online marketing. Its management has stated a $10 billion revenue goal, which can only be achieved by securing a dominant position in every promising cloud-service segment, including online marketing.

Marketo could become the next Salesforce
However, despite Salesforce's efforts to dominate the market, Marketo has done pretty well in the past quarters, capturing significant market share and building a strong brand among savvy marketers. According to the latest earnings call, Marketo was able to grow its revenue by 65% year over year, generating more than $25 million in a single quarter. 

Furthermore, the company is strengthening its ability to do cross-selling and launch new products successfully: In the latest quarter, it was able to cross-sell its new application, Marketo Financial Management, and get more than 1000 customers for its Customer Engagement Engine in less than one quarter.

Marketo's software is conceived by marketers, for marketers
Clearly, Marketo is building strong economic moat. The company's secret sauce may be based on its user-friendly, low-priced, and time-efficient software. Instead of beginning the journey with software coding, Phil Fernandez, Marketo's CEO, spent the first year of the company's existence to interview senior marketers, and identify their real needs in detail. It seems he listened well.

The company's also very good at execution. From webinars and free marketing events to managing a high-traffic blog, Marketo is quickly expanding its reach, building a rich network of marketing executives all over the world. According to G2 Crowd reviews site, Marketo has one of the highest reputations in the field. It is ranked third in the ranking for best marketing automation tools, behind HubSpot and Oracle's Eloqua, which tend to sell their software at higher price points.

Beware of Eloqua
Oracle has been constantly updating Eloqua's features, making it a strong competitor. For example, last week it released Eloqua Profiler, a feature that builds out profiles of prospects based on their interactions with any assets tracked in Eloqua, like a landing page or an email. And Oracle just bought Compedium, a content marketing start-up, to bolster Eloqua's capabilities. 

Final Foolish thoughts
Although big players such as Salesforce and Oracle are investing heavily to dominate the emerging online marketing industry, Marketo should do fine. Simply put, the company has a great product, which it sells at very aggressive price points. Despite its small size and recent IPO, the company already generates $25 million per quarter and has some impressive clients in its list, like Citrix, Samsung and Canon. This is admirable, because marketing executives usually focus on the amount of people that are already using the software, before buying it. 

Several signals suggest Marketo will continue improving its top-line performance. At the current pace, Marketo may enter profit zone sooner than expected.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 30, 2013, at 2:12 PM, mvolpe wrote:

    I think there are a few candidates for companies that can become "the next Salesforce". Marketo is performing well and trades at a high valuation, so they are in the running. There are two reasons that would hold me back from naming them as the leader in the race to be the next Salesforce.com:

    1) Breadth of customer base: Marketo only has 2500 customers. If you want to be the next Salesforce.com, you need to become the solution that everyone uses. Infusionsoft has 16,000 customers and HubSpot has 10,000 customers, both are far more reaching than Marketo or Oracle-Eloqua in terms of usage.

    2) Breadth of functionality: Salesforce is who they are because they sell products to sales, services, IT, HR, marketing... every department in the company! Marketo only sells to marketing. And if you listen to their last earnings call, they seem to be focusing more on marketing over time. Again, Infusionsoft and HubSpot have broader solutions. HubSpot sells separate products to both sales and marketing and Infusionsoft's product is used for ecommerce, CRM and marketing.

    Marketo is a good company and their top line performance is impressive. As a stock if they keep hitting their revenue number they will do great. I just think that to become the next Salesforce.com they need to branch out into a broader platform and a broader customer base, and not just be a marketing app for a few thousand companies. But you can all make money in MKTO even if they are not the next Salesforce.com.

    Disclosure: I am CMO at HubSpot, so I know the market really well, and also have a point of view.

    And one correction: You mention that HubSpot and Oracle-Eloqua sell products at higher prices than Marketo. In my experience, Oracle-Eloqua is maybe a bit higher priced than Marketo. However HubSpot generally has lower prices than Marketo. The average HubSpot customer probably pays 2 to 4 times less than the average Marketo Customer.

  • Report this Comment On October 31, 2013, at 8:21 AM, johnnytrader23 wrote:

    Mike Thanks a lot for the information. I'm researching more about HubSpot and Infusionsoft, since user base size is totally a factor to think about when guessing the next Salesforce. I tried a demo of Marketo but havent tried HubSpot or Infusionsoft. After comparing user-friendliness, response time and features I'll update this thesis with a more complete comparison.

  • Report this Comment On October 31, 2013, at 8:22 AM, johnnytrader23 wrote:

    BTW totally liked how you showed the product offerings divided in small, medium and big with relevant samples for each category in the homepage.

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