Constant Contact pays steeply for acquisition, shares fall

Wed Jun 13, 2012 12:54pm EDT

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(Reuters) - Shares of Constant Contact Inc (CTCT.O) slumped 13 percent after the online marketer cut its full-year earnings forecast and on concerns that it paid too much for a business listings company.

Constant Contact, which paid $65 million for privately held SinglePlatform, cut its forecast for earnings before interest, taxes, depreciation and amortization for 2012 to between $35.4 million and $36.7 million from $45.8 million to $46.9 million.

The company said it expects the deal to add $10 million in revenue in 2013 — less than 4 percent of what analysts expect total revenue to be, according to Thomson Reuters I/B/E/S.

Constant Contact said it will record about $1 million in revenue in 2012 from the acquisition and increased its revenue forecast to $253 million.

"The company is finding it increasingly difficult to grow organic, and hence, they are buying growth at the expense of profitability," Dougherty & Co analyst Raghavan Sarathy said.

Investors realized that products launched by Constant Contact this year are not enough to reaccelerate growth. The company's ability to scale its business in a highly competitive digital marketing market was also under question, Sarathy said.

Constant Contact also granted $5 million in cash and equity, in addition to the $65 million purchase price, to help retain employees of SinglePlatform, which helps small businesses promote their products and services online.

The company's shares, which have lost a quarter of their value this year, fell to $17.03 to be one of the top percentage losers on the Nasdaq on Wednesday.

(Reporting by Neha Alawadhi in Bangalore; Editing by Sreejiraj Eluvangal and Joyjeet Das)