Ellie Mae, Inc. (NYSE:ELLI) Faces Downgrade In Spite of Acquisition


Dallas, Texas 11/07/2013 (Financialstrend) – The $598 million market capped application software maker Ellie Mae, Inc. (NYSE:ELLI) got its rating reiterated to overweight by rating agency Barclays while getting its price target down to $36 per share. In more damaging rating update, Dougherty & Company downgraded the stock from its previous Buy rating to Neutral. The rating agency has indicated that the slowdown in loan applications is a clear indicator of the difficulties the mortgage firms are facing and expects this slowness to create difficult operating conditions to the application provider which counts on mortgage firms as its key customer base. The big cash burn that is currently on in the firm also seems to have triggered red flags for analysts as the software maker has seen its operational expenses balloon up by 28% compared to 3Q12 while its revenue inflow has dipped.

The downgrade and price target drop were initiated in the backdrop of disappointing 3Q operations results. The firm has shed close to 24% in its market valuation during trading since it announced its 3Q results on October 31. The selloff in the stock has been extended due to the tepid guidance the firm advanced for its 4Q operations. The reason for the weakness is being laid on the door step of weak demand for applications which serve the mortgage industry.

Long term investors in the stock would have hoped that the markets would have given Ellie Mae a little more lee way on the results announcement, since the firm also declared its acquisition of CRM and sales automation provider MortgageCEO. This firm has its specialization around advertisement tracking and management work flow specifically tailored to meet needs of the mortgage industry.

The shares were trading at $22.7 at close of business on November 6 almost 31% below its 52 week high price points.