(By Balaseshan) Deutsche Bank analyst Tom Ernst Jr. initiated coverage of Eloqua Inc. (NASDAQ:ELOQ) with a "Buy" rating and $20 price target, due to market leadership and growth opportunities.
Ernst said Eloqua was a pioneer and now is the leading provider of Revenue Performance Management (RPM) and marketing automation solutions delivered through a disciplined, multi-tenant SaaS model.
The analyst said the company's products are designed to accelerate revenue growth and improve revenue predictability of businesses, by automating, monitoring and measuring complex marketing and sales initiatives, while aligning marketing and sales and bringing method to a field that has traditionally had little structure.
Ernst believes that Eloqua's total addressable market (TAM) is currently about $14 billion and could reach $24 billion by 2020. Although TAM is only expected to grow at a 7% CAGR, as the leader in the space he believes Eloqua could take market share and grow at a 26% CAGR during that time. These estimates would imply less than 1% penetration rate currently, but only reaching 2% by 2020.
The analyst's current revenue estimates assume decreasing revenue growth to de-risk new customer wins, attrition, problems managing a high growth company and mild 4Q seasonality. He believes that the long term sustainable growth momentum of the business is 20%-25%.
However, in the near-term the company is likely to continue the trend of mid to high 30% growth, inline with recent performance. Confidence in Ernst's numbers is based on Eloqua's highly visible, recurring revenue model with a sticky list of big customers.
Typically, the company has 95% visibility into the coming quarter and 85% visibility into the FTM ratably recognized subscription revenue. Eloqua has a long list of more than 1100 customers featuring some of the largest and best known brand names that have had more than 100% net subscription dollar retention rate since fiscal 2010.
ELOQ is trading up 1.72% at $14.69 on Monday.