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TPNI: Content Marketing Key to Engagement and Generating Leads; Initiating Coverage with a Hold rating.

By Marla Backer

The Pulse Network (OTC BB:TPNI) operates in the rapidly growing digital market space. Pulse helps clients develop relevant content that their targeted audiences want to consume in order to improve clients’ engagement with customers. The ease with which buyers can research products and services online, as well as the bombardment of electronic communications from prospective vendors has impacted how marketing is conducted. Pulse’s goal is to help companies cut through the clutter to reach their targeted audience more effectively at an early stage by creating relevant digital content and delivering it to targeted sites where prospective buyers conduct their research. Recent examples of platforms that Pulse has created include those for The National Fire Protection Agency and SAP.

Secular trends are likely to fuel the growth of Pulse’s addressable market, in our view. As the internet transforms the way buyers gather information and when they engage with companies, relevant content – particularly socially enabled video content – is expected to increasingly drive discussions and, in turn, marketing efforts. In fact, Forrester Research estimates that spending on email, mobile and social media mark 27% CAGR. We believe these metrics suggest that the addressable market for Pulse’s platform is large and growing rapidly.

In addition, interest from larger companies who want to participate in this sector, possibly through M&A, appears to be rising. Eloqua, one of the pioneers in the space, was purchased by Oracle (ORCL-not rated) in 2012 and there have been several other transactions in recent months.

Pulse also hosts several annual conferences that give it visibility with marketing decision makers and prospective clients. The company’s flagship event, the Inbound Marketing Summit (IMS), attracted more than 1,000 attendees to Boston in 2012. The 2013 IMS is scheduled to be held later this month on October 16-17.

CEO Stephen Saber has more than 20 years of experience in this space. However, the company’s own brief history as a publically traded entity constrains the visibility into revenue growth, as well as into the company’s cash generation and needs, in our view. Although we are positive about Pulse’s prospects, we believe the shares are likely to trade within a range of $0.47 (the current price) to $0.60 until there is greater clarity about those metrics. We therefore initiate coverage with a Neutral rating and price target of $0.54, which is the midpoint of the above noted expected range.

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