Concur Technologies (CNQR) reported results for its second quarter of 2008 that exceeded our revenue and earnings estimates. There was very strong growth in higher-margined subscription revenues in the quarter. We have raised our 2008 revenue projection to reflect an anticipated 63.5% year-over-year growth rate, and have also increased our earnings estimate based on company guidance.
The stock trades at a significant P/E premium to the S&P 500, its industry mean and median, and even its well-established peers. While Concur has a slightly weaker balance sheet but strong near-term fundamentals, we are concerned about the company's long-term prospects, as eventually it will begin to bump heads with the major industry players as it continues to grow at a significant pace.
The company reiterated its commitment to accelerate the pace of re-investments that are intended to sustain the level of revenue growth and innovation in the coming quarters. It rolled out Concur Pay almost six months ahead of schedule and this has led us to raise our 2008 revenue estimates. We expect revenues and GAAP net income in 2008 to increase by 63.5% and 64.7% respectively on a year-over-year basis.
We are encouraged to see that the management is following a mix of both organic and inorganic expansion of the company. The sharp increase in number of customers added in the most recent quarter is expected to give a nice boost to the monthly, recurring higher-margined subscription revenues.
We continue to rate CNQR a Hold with a target price of $37.50, and we believe there is little room for execution error for CNQR at current levels. Our target price of $37.50 is based on the company selling at close to 8.3x to 8.4x its enterprise value to our 2008 sales estimate of $211 million. This lofty valuation leaves little room for error as the company is selling well above the industry average.
Udayan Mukherjee contributed to this report.
Read the full analyst report on CNQR.
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