Our 2013 estimates are unchanged. We estimate income will reach $1.00 a share (+33%) on revenues of $135 million (+33%). Next year earnings could attain $1.35 a share on sales of $175 million even if industry volume contracts in response to higher interest rates. In 2-3 sales could reach $250-$300 million as average revenue per loan expands to $250 from $125 today. That probably would require some acquisitions of data providers, like appraisals. Most of that information currently is purchased separately by the company's customers who generate the complete mortgage application. Ellie Mae has ample cash reserves to make several deals like that. The company could establish royalty arrangements instead, reducing risk but also limiting profit potential. Assuming the royalty strategy is the dominant one, margins probably would remain similar to where they are today. In 2-3 years income could hit $1.75-$2.25 a share under the latter scenario.
Ellie Mae's leading market share in mortgage origination software might leverage a larger corporation's performance. The company has been approached on a regular basis in the past by banks, data providers, servicing companies, and technology suppliers as a prospective acquisition target. In light of the company's low risk profile, high cash generation, and international potential Ellie Mae could command a price of as much as $50 a share, in our view. Rumors are circulating that the process might be underway.
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