Shares of Ellie Mae (NYSE: ELLI) are sinking today, down by about 16% as of 12:30 p.m. EDT, after the company reported second-quarter earnings and reduced guidance.
Continue Reading Below
Ellie Mae has enjoyed unrelenting growth in the years following the financial crisis as banks and other mortgage originators turn to its software packages to help them navigate new mortgage regulations and compliance requirements.
This quarter, Ellie Mae reported that its net income increased 78% compared to the year-ago period. However, much of that increase was driven by tax impacts, rather than operating factors. On a pre-tax basis, income grew just 6.7% in the second quarter compared to the year-ago period.
Weak growth was the result of lower mortgage refinancing volume and a tight supply of homes for would-be buyers. On the conference call, management noted that the average user closed only 1.35 loans per month during the second quarter, down from 1.51 closed loans per user in the year-ago period.
Lower refinance mortgage volumes aren't just a first-half story. Ellie Mae CFO Matthew LaVay said that "[i]n the second half of the year, mortgage volume is expected to be down 28% year over year, driven by refinances down 57% year over year" in prepared remarks on the company's conference call.
The company went on to lay out guidance that it would earn adjusted net income of $1.47 to $1.50 per share for the full year, well below the average Wall Street analyst estimate of $1.90 per share.
10 stocks we like better than Ellie MaeWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ellie Mae wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of July 6, 2017