Baird Cuts Constant Contact, Concerned With Product Selling Challenges

In a report published Friday, Baird analyst Steven M. Ashley downgraded the rating on

from Outperform to Neutral, while lowering the price target from $40 to $35, following the mixed results reported for 2Q15. The company reported some positives in its 2Q15 results, including revenue in line with expectations, higher than expected bottom line, improvement in renewal rates due to improvement in credit card failure levels, ramping of partnerships, and improvement in the contribution from partner channels from the 1Q15 levels. However, the results also included some negatives, such as a sharp swing in product mix with 80 percent customers buying stand-alone email, as well as depressed trial-to-conversion rates during April and May. The management has lowered the upper range of the full year 2015 revenue guidance, while tightening the EPS guidance range. The 2015 new customer growth guidance has also been lowered, along with the ARPU guidance for the year. "Our biggest concern relates to recent challenges selling the Constant Contact bundle (formally Toolkit). As a result, management has rolled back its messaging to focus on email to improve flagging new customer growth," analyst Ashley stated. "The plan is to normalize the business back on email marketing, then once new customer growth recovers, try to migrate email customers to more expensive bundled offerings," the Baird report added.