Adobe Systems Incorporated (ADBE), Vocus, Inc. (VOCS): Be Careful With This Tech Stock

Marketo gets a huge part of its revenue from Salesforce’s customer base. Now, that Salesforce has ExactTarget, this gets more complicated. During the earnings call, Marketo has stated that it is working on diminishing the impact of its Salesforce relationship. However, as potential acquirers turn into powerful competitors, the clock is ticking for Marketo.

The company had $121.9 million of cash on hand, and this cash gives it time to grow. The company needs to improve its margins if it does not want to ruin the balance sheet while growing. There were some bright points on this front in the second quarter. For example, professional services gross margin improved to negative 13% from negative 16% last quarter. There is still a long way to go.

Bottom Line

I do not think that Marketo will be able to grow and deliver profits to support its valuation. Investors cheered the quarterly results, sending the stock almost 50% higher than its IPO price. In my opinion, this is overoptimistic. If the company is not acquired, the stock’s prospects are bleak. The list of potential bidders has narrowed significantly, and I think this should worry investors.

The market will be taken by big players like Adobe Systems Incorporated (NASDAQ:ADBE), whose prospects look very promising. Adobe trades at a relatively high 27.55 forward P/E, so an investor might be better served to wait for a pullback before jumping in. The hope of Vocus, Inc. (NASDAQ:VOCS) being bought is probably still alive. Investors focus on results, and these results are bleak. I expect more downside for this company and its stock.

The article Be Careful With This Tech Stock originally appeared on Fool.com and is written by Vladimir Zernov.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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