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The first half of the financial year for email marketing software specialist dotDigital (LON:DOTD) was a strong one, with sales and profits advancing briskly.
Revenues from continuing operations in the six months to the end of December were up 32.5% to £7.6mln from £5.7mln in the corresponding period of 2012.
Monthly recurring revenues from dotMailer's software as a service (SaaS) platform jumped 29% to £5.8mln.
Group operating profit before tax and exceptional items was up 17.8% to £2.1mln from £1.8mln a year earlier.
Profit before tax in the core dotMailer email marketing & marketing automation software division grew by 17.4% to £2.6mln.
Quizzed about the discrepancy between the growth rates of the top line and the bottom line, chief executive Peter Simmonds explained to Proactive Investors this was because of the investment the company is making to accelerate organic growth.
“I know for every £1 we invest in sales and marketing, we get £6 back, but that £6 is spread is over two or three years," Simmonds said.
“One of the biggest challenges for us is the trade-off between the short-term and the long-term. If we were privately owned, it would be a no-brainer,” he added.
The group's nascent US operations are gaining momentum, with revenues from the US climbing from US$88,000 to US$456,000.
The New York sales office continues to focus on sector niches and higher value corporate clients that it has identified which are the most attractive for the dotMailer product platform.
The group as a whole is moving up the value chain, targeting larger customers that have bigger marketing budgets.
"I am delighted that the strategy of focusing on fast growing medium sized businesses and corporate clients has driven average monthly spend up by 19%. This combined with a focus on longer term contracts and client retention is leading to significantly higher client lifetime values," Simmonds told investors.
Simmonds believes that automating email marketing campaigns in a smart fashion is the coming trend.
“The ultimate aim is for fully automated marketing which, depending on who you ask, is three to seven years away," he told Proactive.
"The parallel is the self-driving car. The motor industry has defined five levels of automation, starting with headlights coming on when it gets dark.
“We’ve established five levels of automated marketing and we are trying to help people get up from level one to level two or three,” he declared.
The company, which sprang a pleasant surprise last year by declaring a maiden dividend with its full-year results, has not declared an interim dividend, preferring to wait to the end of the financial year to make a decision on the divi. The omens are looking good, however.
"Based on the strong performance at the half year to 31 December 2013 and the forward pipeline, the board remains confident of achieving both revenue and profit expectations for 2014 and of delivering long term shareholder value," Simmonds told investors.
House broker finnCap said it is leaving its full-year forecast and 35p price target unchanged following the interims. The broker is tipping full-year sales of £16mln, adjusted profit before tax of £3.5mln and an unchanged final dividend of 0.1p.
The group’s revised strategy is progressing well, declared finnCap analyst Mark Paddon. “Monthly recurring revenue is up 29% to £5.8m and now represents 78% of total revenue. Average monthly recurring spend per client has increased from £238 to £284, and the number of new clients signing on contracts between one and three years is 74% compared with 66% in H1 last year,” Paddon said.
Northland Capital Partners, meanwhile, said it was a good performance across all metrics.
“Fall off in discontinued operations (Web Design and Search marketing) more than offset by growth in the core dotMailer email marketing and marketing automation software and the new Magento connector software,” Northland’s David Johnson said.
“Successful execution of the US expansion remains key,” Johnson averred.
Shares initially rose to 31.85p on the interims, but have now slipped to 29.56p, down 0.69p on the day.