Raab Report: Financial Comparison of B2B Marketing Automation Vendors

I’ve been so busy analyzing the new VEST data that I missed the announcement that Eloqua’s would make its initial stock offering today. The valuation was a bit disappointing – $368 million, or just over four times revenue trailing 12-month revenue – but certainly a good return on its backers’ investment of about $41 million. And the stock did rise 12% on the first day. Good for them, and congratulations.

Coincidentally, I was already planning to write today about industry financials. I’ve been creeping in that direction with the previous two posts about revenues, growth rates, and market share. Now let’s plunge in with some more substantial analysis.

For companies like Eloqua and its competitors, there are really two big financial questions: how fast can they grow, and how can they become profitable? In a young industry like B2B marketing automation, the primary focus is growth, and I published some figures on that yesterday  (repeated below). As we saw, Eloqua’s client count is growing considerably slower* than all major competitors except Infusionsoft. This may be one reason the stock market gave it a relatively conservative valuation.

Revenue figures tell a similar story, as does revenue per client. We looked at those in Tuesday’s post;  I’ll repeat the caveat that figures for Eloqua and HubSpot are my own estimates based largely on client growth and (for HubSpot) changes in client mix. The standout performer in all these tables is Marketo, but bear in mind that they’ve also taken much more investment than any of the others ($107.5 million) and the $70 million in 2012 revenue hasn’t happened yet. Still, this suggests that Marketo might be able to fetch a higher price than Eloqua.

What about profitability? I’ll repeat that the financial markets care much less about profits than growth for early stage companies. Still, profits will have to matter eventually.  So they're worth a look.

Eloqua is the only company in this group with published financial statements, so any profitability analysis has to be speculative. One useful measure is employee counts, which are a reasonable proxy for expenses and operating efficiency. The table below presents clients, employees, and clients-per-employee ratios.

The first thing you’ll notice is the broad range in clients-per-employee ratios: from 40:1 for Infusionsoft to less than 4:1 for Eloqua. The main reason is the size of each company’s clients – Infusionsoft serves small businesses that take much less effort per client than the mid-size and large companies who buy Eloqua.

Still, Marketo, Pardot, SalesFusion and Net-Results all serve primarily mid-size companies, so they are somewhat comparable. (Act-On tends a bit smaller.) Given that assumption, the figures suggest that Pardot, Net-Results and SalesFusion are more efficient than the others. That’s probably true, perhaps because they are all self-funded. Net-Results also markets primarily through resellers, which also lowers its costs.  Act-On’s ratio is notably low, probably reflecting aggressive staffing as it prepares for rapid growth.

The second thing you’ll notice is the year-on-year trend. Infusionsoft, HubSpot, Act-On, and Net-Results all show a drop in the clients-per-employee ratio since last year, meaning they have become less efficient. We can probably attribute that to gearing up for growth. By contrast, Eloqua, Pardot and SalesFusion have become substantially more efficient. Eloqua’s gain is particularly impressive since it has the largest client base and relatively low growth – suggesting the company has been working hard to keep costs down in preparation for its public offering. It looks like Marketo has become just slightly more efficient, but we'll revise that opinion in a moment.

Since we do have revenue figures for the top four vendors, we can also look at their revenue per employee. This is a standard efficiency metric and more directly comparable across companies.  Here's that data, along with revenue per client.

These figures put the client-per-employee ratios in deeper perspective. They confirm that Eloqua has improved efficiency, and by far the highest revenue per employee in the industry.  The figures may be be overstated (see footnote) but even more conservative values would leave Eloqua in first place.  The figures also confirm that Infusionsoft’s cost structure is pretty much stable.

The news is better for HubSpot, whose apparent productivity decrease (measured in clients-per-employee) vanishes when you measure revenue per employee instead. The difference is the growth in revenue per client (which, I’ll remind you again, is only my personal estimate).

The story is even more dramatic for Marketo, whose 6% improvement in clients per employee becomes a 23% gain in revenue per employee, boosted by a 16% increase in revenue per client.  Impressive, but let's hold the applause until we see the actual results.


Whew, that’s a lot of numbers. Maybe only industry insiders will find them as interesting as I do. But other marketers should also find them helpful as they try to understand each vendor's business situation and determine how well it matches the marketer's own needs.

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* And that's using Eloqua-provided figures of 900 clients as of mid-2011 and 1,375 for mid-2012, which yield a 53% year-on-year growth rate.  The revised S-1 published in mid-July showed 42% year-on-year revenue growth.  A 42% growth rate would yield 2012 revenue of $101 million vs. my estimate of $110 million, and a 7% drop in revenue per customer to $73,455.  Ouch!  On the plus side, even the adjusted $288,571 revenue per employee is higher than anyone else, and a 16% improvement over 2011.