Year: 2013
John Chen’s Challenge
As BlackBerry (NASDAQ: BBRY) refines its mission of “pushing the boundaries of mobile experiences,” all eyes will be upon 58 year-old John Chen, who has been named interim CEO.
Mr. Chen, who hails from a modest upbringing in Hong Kong, and lived in New England for several years, where he attended the Northfield Mount Herman school on the banks of the Connecticut River, and graduated with a EE from Brown University in 1978. He then headed West to receive his masters in electrical engineering from the California Institute of Technology the following year.
John Chen began his career at Unisys, (the merger of mainframe computer companies Burroughs and Sperry) as a hardware engineer, and later became president and COO at age 38 of Pyramid Technology Corporation, a fast-growing computer company, based in San Jose, California, started by former HP engineers, and a pioneer in Reduced Instruction Set Computing. After Siemens acquired Pyramid and merged it into Siemens Nixdorf, Chen became president and CEO of Siemens Nixdorf’s Open Enterprise Computing Division in 1996.
A year later he joined Sybase, as president and CEO. Sybase, at one time, was the youngest and fastest growing database software company in the world, and a perceived challenger to Oracle for technology leadership. A series of management missteps pertaining to its products and technology, misleading financial statements, and ultimately lost investor credibility, led to a multi-year phase of purgatory—not unlike that experienced by BlackBerry.
This set the stage for a turnaround, which was led by John Chen, after he assumed leadership of the company in 1997. Under his leadership Sybase reemerged as a provider of data warehouse and other analytics software, mobile data management, messaging and virtualization technology. And the company recorded 55 consecutive quarters of profitability. In May of 2010 SAP AG the German enterprise applications software giant acquired Sybase for $5.8 billion, thus filling a gaping hole in its own product line, and better positioning itself as an Oracle competitor.
Among the myriad challenges facing John Chen and the management of Blackberry is what to do with the company’s smart phone and tablet business, which has steadily lost market share to long-standing competitors and up-starts. The company’s software challenges are no less daunting, although the company possesses solid mobile and security assets. Blackberry also benefits from several thousand patents relating to mobile devices, software, and security, and these are sure to be powerful assets in the future.
All in all, John Chen’s challenges exceed those that he faced upon joining Sybase some thirteen years ago. It will be interesting to see whether his interim position is followed by a more permanent one in which he can reestablish the leadership once held by the venerable Canadian company.
Constant Contact Still Flying Below the Radar Screen
Constant Contact (NASDAQ: CTCT) of Waltham, Massachusetts is the category leader in email marketing software, with a cloud-based subscription software service that helps over 550,000 companies mount effective marketing campaigns, and maintain a continuous line of communication with customers and prospects. Though the company lost focus last year with an over-exuberant thrust into the social media market, Constant Contact, has, in the last several quarters returned to a more disciplined sales approach, and has added over 10,000 gross new customers in each of the last two quarters. We think it highly probable that CTCT will end 2013 with close to 600,000 active customers.
Constant Contact targets more than 20 million small and mid sized businesses in the U.S., as well as non-profits, including trade associations, schools, churches, hospitals and libraries. Constant Contact’s core email marketing product improves the quality and frequency of interaction with customers, constituents, and prospects, while reducing the costs associated with expensive, and often wasteful direct mail.
Three years ago Constant Contact offered only one product, email marketing, but now has six: online surveys, event marketing, social media marketing, local deals, and digital storefronts for small businesses. Each of these products target large addressable markets inside the company’s existing customer base, as well as new segments, which are receptive to the company’s affordable pricing. The new products have thus far been modest revenue contributors, yet signs are pointing in the right direction, as the company has demonstrated that its customer retention rate is 20 percent higher among customers that opt for two or more products, and 40 percent higher among customers who subscribe to three or more products.
CTCT has been slow to address overseas markets, but its products are used in the English language in over 100 countries. We believe the company will have a large addressable market overseas once it begins to roll out foreign language versions of its products.
Constant Contact, despite having made a dilutive acquisition, which cost the company over $65 million in cash, maintains a stellar balance sheet with nearly $100 million in cash, no debt, and negligible receivables. The company anticipates generating over $20 million in free cash flow this year, and not long ago initiated its first-ever share repurchase program, with an authorization for $20 million.
Constant Contact’s improving prospects coincide with a recent acceleration of M&A activity in the marketing automation sector led by Salesforce.com’s purchase of ExactTarget, and Oracle’s recent acquisition of Eloqua. Constant Contact’s large installed base, improving business model, growing portfolio of products, and untapped potential at the mid-range of the email marketing market are among its most alluring attributes, which may yet lift it above, rather than below many investors’ radar screens.
Amazon.com: Streaming for Success
As part of its mission to provide planet earth with the largest selection of consumer products and services, Amazon.com launched Amazon.com Prime Instant Video in February 2011. The $79 per year annual service, an extension of its Amazon Prime two- day shipping program for all Amazon purchased goods, now features over 36,000 movies and television shows that can be streamed to its customers’ video devices, at no additional cost. In its most recent quarterly letter to shareholders, Netflix, Amazon.com’s most significant streaming competitor, indicated that of its top 200 most popular television shows and movies in the fourth quarter, Amazon.com offered 37 percent of these to its viewers. This overlap has risen from zero two years ago, and is the highest level of overlap among Netflix’s key competitors.
Amazon.com. like Netflix, has recently become more interested in proprietary content that can be displayed only to Amazon.com Prime Instant Video customers. Toward that end Amazon.com recently added FX crime drama Justified to its expanding line-up of exclusive content. Amazon has also announced exclusive agreements with PBS for Downton Abbey, and the CBS series Under the Dome, based on the Stephen King novel, and produced by Stephen Spielberg. Through Amazon Studios, an original movie and series production arm of Amazon.com, Amazon currently has 11 min-series in either trial or production mode, including five children’s series, and six comedy pilots. Amazon intends to air the productions on Amazon Instant Video, Prime Instant Video, Lovefilm UK and Germany (an Amazon.com subsidiary), where customers will pay no additional cost to view them. Amazon intends to gather feed-back during the pilot mode to determine further funding.
Amazon.com briefly experimented with a monthly subscription service in November of 2012 in advance of the holiday shopping season, but mysteriously pulled it after two weeks, preferring to keep Amazon Prime an annual, rather than monthly subscription service. A major motivating factor for Amazon.com may have been its desire to avoid getting stuck with a massive shipping bill during its seasonally strong fourth quarter, which ultimately revealed a declining rate of sales growth, which, in turn, has upped the ante on succeeding with its streaming strategy.