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Ellie Mae, Inc. (ELLI) Q4 Earnings Preview: Smacking Wall Street Estimates Like Ike Turner

 February 08, 2013 02:20 PM


(By Rich Bieglmeier) Ellie Mae, Inc. (ELLI) will release financial results for the fourth quarter and fiscal year ended December 31, 2012 following the close of the market on Thursday, February 14, 2013. The Company will host a corresponding conference call and live webcast at 4:30 p.m. Eastern Time on that day. Wall Street anticipates that ELLI will earn $0.21 for the quarter. iStock expects the application software company to report earnings that will beat Wall Street's consensus number. The iEstimate is -$0.26, a $0.05 upside surprise.

Ellie Mae provides business automation software for the mortgage industry in the United States. Its on-demand technology-enabled software solutions help streamline and automate the process of originating and funding new mortgage loans facilitating regulatory compliance and reducing documentation errors.

[Related -Stocks Rally Amid Positive Data; Verisign (VRSN) Jumps]

Encompass360 is ELLI's lead product. iStock checked Google Trends to see how search queries are faring. According to Google, search volume is light; however, the good news is online searches for "Encompass360" are at an all-time high. Although data is limited, the trend is in the right direction.

Management has released a quarterly scorecard only a few times in the tech company's limited public history. In the last six checkups, Wall Street analysts have been way off the mark as Ellie Mae missed once by 100%, beat four times by an average of 81%. But, it is not all bad for the gurus; they hit the bulls' eye once!

[Related -Futures Rise As Data, Earnings Weigh; JDA Software (JDAS) Jumps]

Shares put gains on the board three of the four times the software stocks outpaced the consensus, gaining an average of 21.6% in the days surrounding the announcements. The stock price gave 9.5% last time out, despite topping the guesstimate by 53%.

The miss was greeted with a drop of 8.3%. Meanwhile, Wall Street celebrated getting it right with an increase of 4.3% on the one on target call.

We found some encouraging signs in our review of ELLI's most recent FORM 10-Q. Revenues for Q3 were up 87% year-over-year (YoY). At the same time, total operating expenses increased at a slower pace, increasing 53%. Overall, operating expenses as a percent of sales feel from 67% to 55%. That's a good sign for margins. In fact, gross profit margins increased from 72.4% to 78% YoY.

Overall, if Google Trends are predictive and margins continue to get fatter, then Ellie Mae, Inc. (ELLI) should deliver another powerful upside surprise. Based on today's option activity, speculators are betting 25 to 1 on the February 17.5 through 22.5 call options over put options; however, open interest for the same strike prices stands 2004 puts and 1324 calls.

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