dotDigital to wind down struggling SEO division

dotDigital, the AIM-listed digital marketing company, has decided to wind down its struggling services division, dotAgency, after an thorough review.

Even though the company received a number of indicative cash offers for the division, it said that the "best course of action is to gradually wind down activity within this division whilst continuing to service its existing clients for the duration of their agreements".

The firm said that it can achieve "greater value" for shareholders and the best service for its clients this way.

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Changes in the market, especially adjustment's made to Google's search-engine algorithms, have meant that it has become difficult without significant investment to profitably cross-sell search-engine-optimisation (SEO) services, dotDigital said.

The company's core business is e-mail marketing 'Software as a Service' (SaaS) products to digital marketing professionals. While this continues to perform "very strongly" with group sales jumping 24% in the first half, revenues from SEO slumped at a faster-than-expected rate of 21% and represented just 6.0% of total turnover.

Chief Executive Peter Simmonds said: "Whilst good progress had been made in growing our ecommerce capabilities there were few synergies between that business and the core email marketing business.

"It is if course disappointing to have to make this decision, but we also feel that this represents a significant opportunity by freeing up resources and management time to fully concentrate on our strategy of continuing to grow our core Email Marketing SaaS products offering which grew 39% from the same six month period in the prior year."

The company expects to have fully exited the business in around 18 months.

Simmonds said the move will be net-cash-flow positive to the group and there will be no material impact on earnings, beyond the accounting adjustments to the goodwill originally attributed to an acquisition in 2009.

Shares were down 6.31% at 14.29p in early trading on Tuesday.