THE BLOG

Billion Dollar Unicorns: How Marketo Is Faring In The Public Market

02/09/2015 12:00 pm ET | Updated Apr 11, 2015

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Last year, we began tracking some Unicorn companies - essentially organizations with billion dollar plus valuations - inspired by a TechCrunch article by Aileen Lee of Cowboy Ventures. Some of these Unicorn companies went public last year and have reasserted their high valuations. One such company on my radar is digital marketing solutions provider Marketo (Nasdaq:MKTO).

Marketo's Journey

Marketo began in 2006 with the intentions of becoming a high-velocity SaaS company focused on Lead Nurturing. Their founder and CEO Phil Fernandez began his professional life as a computer programmer. He worked at several organizations that went from being venture funded startups to becoming publicly listed organizations. By 1996, he had narrowed down on the idea of creating a digital company that would democratize the CRM process and be able to make an organization's sales team at least five times more effective and help drive 40% revenue growth through Lead Nurturing. As Phil puts it, Lead Nurturing is a scaleable way of managing a lead from the date the marketer meets a potential customer until the date the customer is ready to buy.

They began attracting customers by offering high quality content including blog posts, whitepapers and research notes. In my discussions with Phil in 2011, he mentioned how they attracted customers.

"We did not have anything to sell, but we had resources for people to register and give us their contact information. As the product got closer, we started doing our own webinars and gave people some sneak previews of what was coming. We became our own beta user. We adopted content drive and social driven marketing strategies, and we did for ourselves what we do for our customers now. The day our product was ready for launch he was able to give our sales people 50 names of potential buyers."

Marketo's Financials

Through his initial associations, Marketo was able to raise $108.4 million in venture funding from investors including InterWest Partners, Institutional Venture Partners, Storm Ventures, Mayfield Fund, and Battery Ventures before it went public in 2013 by raising $75 million. Today the company is trading at a valuation of $1.4 billion. Marketo's valuation has been hovering around the $1 billion mark ever since they went public.

Marketo has recently ended their fourth fiscal quarter, but the results are still awaited. Last October they announced third quarter results and the quarter's revenues grew 54% over the year to $39.3 million, significantly ahead of the Street's target of $37.5 million. Adjusted losses of $0.14 per share were also significantly better than the market's forecast loss of $0.25 per share.

By segment, subscription and support revenues came in at $34.2 million compared with $31.2 million reported a quarter ago and $22.5 million reported a year ago. Professional services revenues increased 36% over the year to $5.08 million.

For the December ended quarter, Marketo projected losses of $0.26-$0.24 per share on revenues of $40.3 million-$40.8 million. The Street was projecting revenues of $39.6 million. Marketo expects to end fiscal 2014 with a loss of $0.76-$0.74 per share and revenues of $147.9 million-$148.4 million.

Marketo's Growing Customer Base

Marketo's success lies in their ability to attract customers efficiently while delivering high growth. Even when their product was in the Beta stage, Marketo had signed up 15 customers. Today, they continue to display similar zeal in attracting new customers. For the reported third quarter, Marketo had grown that number to nearly 3,500 customers worldwide. Recently they announced that Panasonic Systems Communications Company Europe deployed Marketo across 25 countries to help improve market penetration.

Last month, Marketo was also selected by VIF International Education, a leading provider of global education programs for K-12 schools, as their marketing tool to help build brand awareness. Some of the other recent customer additions include Rocky Brands and rFactr.

Marketo's Expanding Products

Marketo continues to attract customers by improving their product offerings. Recently they released the upgraded Engagement Marketing Platform that successfully integrates the best practices of B2B and B2C marketing. The Platform features a single system of record that helps track customer marketing data, enables marketing automation by simplifying execution of marketing programs, providing real-time personalization, fully integrating the social networks, and providing real-time metrics on marketing performance.

The digital marketing space has seen consolidation in the recent past. Oracle acquired Eloqua and analysts expected Marketo to be the next possible take-over. Possible list of potential suitors included SAP and NetSuite. For now though, Marketo has managed to stay independent. Their stock is trading at $33.23 with a market capitalization of $1.4 billion. It touched a year high of $45.00 earlier last year.

While Marketo continues to expand their existing offerings, I am convinced that its next level of growth will come from inorganic moves. One potential target appears to be ON24, a leading provider of webcasting services. I believe the move will help Marketo grow adjacent capabilities and gain a strong foothold in the global webcasting and virtual events market. ON24 holds almost 28% of this market and was estimated to be operating a profitable business with annual revenue run rate north of $75 million. They generate leads, Marketo nurtures them. What could be a more logical fit?

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks.

Photo: Jill Browne/Flickr.