Marketo Winds Up for Risky IPO
Marketo has taken the plunge, filing SEC documents for an IPO. The company will be entering public life with a history of losses and uncertain prospects. What it has going for it is the heat social media integration is generating in the marketing automation sector. That said, investors should approach the stock with caution, advised Salto Partners' Andreas Scherer.
Marketing automation company Marketo filed paperwork with the Securities and Exchange Commission on Tuesday to launch an initial public offering. The IPO is valued at US$75 million.
The company has not yet proposed a stock price. It does say in the filing that it is considered an "emerging growth company," and it plans to list on Nasdaq under the symbol "MKTO."
History of Losses
The most telling portion of the filing was the company's description of the risks related to its business and industry. Marketo has a history of losses and it "may not achieve consistent profitability in the future," according to the filing.
The company generated net losses of $11.8 million, $22.6 million and $34.4 million in 2010, 2011 and 2012, respectively. As of Dec. 31, 2012, it had an accumulated deficit of $82.2 million.
Marketo also pointed out some drawbacks of the SaaS business model it has adopted.
"Our customers have no obligation to renew their subscriptions for our software after the expiration of their subscription period, which is typically one year, but ranges from one quarter to three years," the filing notes. In addition, "our customers may renew for lower subscription amounts or for shorter contract lengths."
Marketo intends to invest significant funds to expand its marketing and sales operations, develop and enhance its product line, and upgrade its data center infrastructure and services capabilities.
An Emerging Niche
Marketo is a player in a CRM category -- marketing automation -- that is getting more active by the day. The space is enjoying hyper growth on the coattails of social media. Just a few weeks ago, Marketo rolled out a new application that emphasized its social media integration bona fides.
One thing that stands Marketo in good stead is that it is an integrated offering, said Andreas Scherer, managing partner of Salto Partners. Corporations increasingly are gravitating toward tech platforms that can replace a mix of point solutions and processes, he told CRM Buyer.
That doesn't mean the IPO should be embraced with abandon, Scherer cautioned. "Investors need to understand the following about this IPO: While Marketo is operating in a red-hot hot space, the company has yet to establish a profit."
Perhaps a strategic acquisition by Salesforce -- along the lines of Eloqua's acquisition by Oracle -- would have been the better long-term play, he suggested.
Marketo's prospects for the long haul are uncertain, Scherer concluded, "both from a financial and a technological perspective."