Adobe Systems purchase of Marketo pricey but a step in becoming a market leader, says Baird Research

The decision by Adobe Systems Inc (NASDAQ:ADBE) to acquire privately held Marketo for US$4.75bn in cash is high, but it emphasizes Adobe’s determination to become a leader in the rapidly expanding cloud business solutions and software, a report by Baird Research said.

“While the acquisition price appears fairly steep (on a P/Sales basis and considering Adobe is paying >2.5x what Vista bought Marketo for less than two years ago) we believe Adobe is doubling down on B2B and focusing on being the leader in “Digital Experiences,” where the competitive landscape is shaping up to be MSFT (Microsoft)/ADBE alliance versus Salesforce.com/Google,” a report by senior research analyst Rob Oliver said.

Marketo is a leading B2B digital marketing solution company which was public from May 2013 to August 2016 before being acquired by private-equity firm Vista Equity Partners for US$1.8bn. Adobe will integrate Marketo into its Experience Cloud and use Marketo’s strength in B2B marketing to complement Adobe’s leadership in B2C. 

Marketo is a leading B2B digital marketing solution that was owned by private equity firm Vista Equity Partners. Marketo has roughly 5,000 customers, but the impression is the Marketo team has continued to successfully scale its Enterprise B2B approach to what we “assume” is 35%+ of subscription revenue”, according to Baird.

READ: Adobe Systems buys software maker Marketo for US$4.75bn

Shares of Adobe finished 0.55% higher on Thursday at US$266.34. The stock slipped 0.13% to trade at US$266 in the premarket on Friday.

Marketo reported revenue of US$320mln in CY17, and was expecting to grow 20% to US$384mln in CY18.

“If” we assume 20% growth for CY19E, this implies an acquisition multiple of 12.3x CY18E and 10.3x CY19E revenue,” Oliver said.

Marketo reported revenue of US$210mln in CY15 before being taken private in 2016. The disclosed figure of US$320mln in CY17 revenue implies 23% CAGR from CY15-17.

The Marketo Engagement Marketing Platform product suite of applications include: Marketing Automation, Email Marketing, Mobile Engagement, Social Marketing, Digital Ads, Web Personalization, Marketing Analytics, Predictive Content, Marketing Calendar, Sales Insight.

Adobe is the leading vendor of software used by publishers, developers, marketers and other creative professionals to create, manage, measure and monetize digital content. the company is based in San Jose, California.

Story by ProactiveInvestors