Company chief says U.S. recession fears could mean boon for online retail business
Justin Shimoon, president and CEO of Sitebrand. (Photo by Darren Brown, OBJ)
Despite worldwide fears about a looming U.S. recession, Sitebrand.com Inc. chief executive Justin Shimoon says it's a golden time for the e-commerce industry, and for Sitebrand's coming-out party.
The Gatineau-based company - which helps clients increase the number of customers who make purchases after clicking through an online advertisement - is looking to start trading by mid-April through a qualifying transaction with capital pool company Pretium Capital Corp.
"The market's ripe for us in terms of the space we're in," says Mr. Shimoon about the timing of the transaction. He points to U.S.-based online business optimization company Omniture as an example of the market potential for a firm such as Sitebrand.
"The market comparables for Omniture have been eight to 10 times 2007 revenues, which is unheard of (for many companies) ... it's an interesting growth opportunity."
Indeed, a Forrester Research report from January says the value of online retail in the U.S. alone reached $175 billion in 2007 and is expected to grow to $335 billion by 2012, partly because retailers are moving away from the bricks-and-mortar format to the higher-margin web-based storefronts.
And these numbers are despite the fact that only about 2.6 per cent of customers who visit the online retailer actually spend any money, since most tend to browse and then leave quickly.
As such, Sitebrand's solution is designed to help retailers boost that online business by one to two percentage points by personalizing the online customer's experience on the website, such as providing a special Canadian version of the website with Canadian shipping costs and customs information, or providing areas on the retailers' site in Japanese text for Japanese customers. Sitebrand also analyzes information such as what the customer adds and then removes from their online shopping cart.
"The average online customer leaves after going five or six pages deep into a website, so if you haven't presented them with a compelling message at that point, the chances are they'll leave," Mr. Shimoon says, noting that a one-percentage-point optimization in click-throughs could result in a 40-per-cent increase in online business, with 18 months of benefits from that recurring customer.
Online retailers seem to be buying into the optimization technology idea: a separate Forrester Research study from last October said spending on interactive marketing - which is what Sitebrand enables for its retailer customers - will grow to $61 billion by 2012.
Even worries about a U.S. economic slowdown don't dampen Sitebrand's optimism.
"With the potential recession fears in the U.S., most multi-channel retailers with 'bricks-and-clicks' storefronts - online and offline - are not looking to reduce online because there are better margins since there is no need for a sales representative, and products can be shipped directly out of the warehouse, so we're in a sweet spot in the event of recession," Mr. Shimoon says.
Sitebrand had chosen to go the capital pool company route instead of doing a reverse takeover or initial public offering because - besides being a quick and solid way to raise funds in a cash-strapped venture capital environment - it's less risky and cheaper than either of those two methods, he says. Pretium agreed in November to buy all of Sitebrand's issued and outstanding shares. The company also announced that it had plans to raise at least $1.5 million in a concurrent private placement of Pretium securities, with the aim to obtain more than $3 million.
So is it a good time for a company like Sitebrand to make its market debut?
"It's as good a time as any," says Paul Bradley, director of research at investment banking and advisory services firm Fraser Mackenzie in Toronto. "The public markets are quite tough right now, and one of the big problems for the fund managers is that they really don't know where to invest. But people are starting to turn back to technology and biotech firms."
Mr. Bradley says the Internet shopping model has been clearly demonstrated to work in getting the right type of customers to look at products, but what's less obvious is the efficacy of the type of personalized content Sitebrand enables in persuading customers to actually key in their credit card digits online.
However, he notes that many retailers recognize the value of the service Sitebrand provides, and the company has been able to provide customer testimonials and studies to show that it's doing a good job, so it appears the future is bright.
"They have an interesting business model and a recurring revenue model that should appeal to investors," Mr. Bradley says. "It's clear that (online shopping) is already and is becoming a larger way in which consumer spending is directed, and being a service provider linked to that market and the growth of that market is clearly a very good place to be."
Plans are already underway for Sitebrand's growth. Mr. Shimoon says the company is looking to add roughly 15 staff to its 40-person team by the end of 2008, which has already grown by more than 60 per cent in the past 16 months. Revenue growth has "always grown by over 50 per cent a year," Mr. Shimoon says. The company has about 90 customers and is planning to augment those numbers by expanding sales and marketing in the U.S., and into the U.K. later this year.
"Online shopping is exploding, and there's going to be more and more of a need for technologies to leverage that growth ... I think that's the main thing about our business and why it's going to get financed in the public markets," Mr. Shimoon says.