E2open Not So Bad ?

EOPN : NASDAQ : US$20.42
BUY 
Target: US$24.00

COMPANY DESCRIPTION:
E2open sells cloud-based supply chain management solutions for sophisticated trading networks. Powering 7 of the world’s 10 most complex supply chains, the firm’s software provides visibility into trading processes via technology for planning, execution, real-time modifications, and deeply functional analytics. E2open is headquartered in Foster City, CA and went public in July, 2012.

SUBSCRIPTION GROWTH INTACT;
AFTERHOURS REACTION OVERDONE
E2open reported high-end of the range organic results, and qualitative commentary suggested that bookings in the quarter were fine, not great. A NASDAQ halt of trading at the close and the appearance of a material revenue and earnings cut – justified by a faster than expected transition of services to partners, which is a good thing – induced a 24% after-hours sell off. While we weren’t blown away by the quarter, we likewise were surprised by the panic selling considering that the firm reiterated expectations for 30% new/upsell bookings growth and specifically called out strength in the pipeline. We’d use
the weakness to buy EOPN shares “on sale.” Reiterate BUY.
Organic results at the high end of guidance ranges. EOPN reported Q2/14 non-GAAP revenues and Adjusted EBITDA of $18.6M and loss of ($2.3M), which after backing out the roughly $1.1M in icon contribution, put the firm’s performance respectively at the high-end and above guidance.
Subscription revenues grew 27% organically in the quarter. EOPN added 3 new customers in the quarter, which was below our expectation, yet on trend for the firm to hit full year booking targets according to management.
Guidance: 30% bookings growth intact, organic subscription growth reiterated, cutting estimates on services transition progress. While there’s a lot of moving parts to guidance, the key takeaway should be that new bookings and organic subscription growth expectations are unchanged. The faster than expected transition of implementation work to partners
and the cost of training them has driven lower near-term services revenue and a cut in profit forecasts. In our opinion, the firm is making the right decisions for the long-term financial profile of the business, which is all that you can ask from a manager – painful as it may be in the near-term.

 

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