Bloomberg News

Ellie Mae Gains on Mortgage Demand: San Francisco Mover

February 24, 2012

Ellie Mae Inc., the mortgage- software company, surged to its highest since it first sold shares to the public in April on strong fourth-quarter earnings and reports that signal the housing market is stabilizing.

Ellie Mae rose 13 percent to $8.98 at the close of NYSE Amex trading. The Pleasanton, California-based provider of mortgage-origination software and services offered stock at $6 a share in April 2011.

“Ellie Mae reported very strong results in 2011’s fourth quarter, its fourth as a public company,” Brandon Dobell, an analyst at William Blair & Co., wrote in a note. He maintained his “outperform” rating on the company.

Total revenue was $18.7 million, the highest in Ellie Mae’s history, up 48 percent from a year earlier, “and 24 percent above our $15.2 million estimate,” Dobell said.

“The strong revenue performance was driven by user additions and revenue per loan well above expectations, evidence that Ellie Mae’s strategy is playing out and is doing so without a great end-market environment,” Dobell wrote.

Ellie Mae provides software products and services to mortgage bankers and brokers, community banks, credit unions and other lenders focused on funding residential mortgages.

Earlier this week, Ellie Mae said a trial phase of its Total Quality Loan program with Wells Fargo & Co. (WFC), the largest U.S. mortgage lender, has “progressed nicely,” and this may also provide a boost to 2012 revenue, Dobell wrote.

“The loan program is further evidence of Ellie Mae’s ability to innovate as the market requires new products and services,” he wrote. “We believe it remains the thought leader in the mortgage technology space.”

Expanding Software Services

The company last month named David Robbins, NetApp Inc. (NTAP)’s former chief technology officer, as chief information officer. Robbins, in a newly created role, will be responsible for managing Ellie Mae’s data center operations that support the company’s expanding software services.

Ellie Mae’s push to improve its technology offerings in the mortgage market comes after a report this week showed U.S. sales of existing homes rose in January to the highest level since May 2010.

Purchases climbed 4.3 percent to a 4.57 million annual rate, less than forecast, from a revised 4.38 million pace in December that was slower than previously estimated, a report from National Association of Realtors this week.

“There are moderate increases in existing home sales, which is the largest market, and the longer term trend signals there is a recovery taking place,” Lawrence Yun, the chief economist with the National Association of Realtors, said in a telephone interview.

‘Better Prospect’

“Inventory levels are falling, which means there will be a better prospect for pricing,” Yun said. “There is the job market recovery, stock market recovery, better credit conditions, so there is a prospect for genuine recovery.”

Ellie Mae will probably benefit from the nascent recovery in housing, Dobell said. While purchases of new homes in the U.S. fell last month, they exceeded forecasts and touched a one- year high in December, Commerce Department figures showed today.

Ellie May’s current valuation “remains quite attractive,” Dobell wrote.

The fourth-quarter earnings, somewhat improved end-market conditions and “strong execution of strategy to add services, acquire and grow users” as well as convert an existing software model “have laid the groundwork for a continued upward move in the stock in the near term,” Dobell wrote.

To contact the reporter on this story: Samantha Zee in San Francisco at szee@bloomberg.net

To contact the editor responsible for this story: Jeffrey Taylor at jtaylor48@bloomberg.net


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