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Cornerstone OnDemand Surges as Job Market Stabilizes

Stocks in this article: CSOD

NEW YORK ( TheStreet) -- Cornerstone OnDemand (CSOD) shares closed up 7.59% at $51.01 on above-average volume a day after the cloud talent management solutions provider reported stronger-than-expected revenue growth and as the head of the company underscored U.S. labor market trends and European economic developments that are working in its favor.

CEO Adam Miller said in a phone interview with TheStreet Wednesday that while the U.S. labor market looks to have stabilized and overall unemployment will continue to decline, there will continue to be a clear split in the labor economy whereby the skilled labor market remains extremely tight and unskilled workers continue to have an extremely tough time finding jobs.

"And so tools like ours become extremely important to be able to recruit passive candidates who aren't looking for jobs but who have the right skills, or to effectively engage high potential employees, and for keeping them in the organization and to continue to train and develop them," Miller explained. "We've seen a clear split in the economy, and we've benefited from it."

Over in Europe, Miller continues to see soft economic conditions in the south and high levels of unemployment, particularly in Spain. "There are truly scary levels of unemployment at those demographics 18 to 30 year old market and we may end up with major civil unrest at some point." On the other hand, Miller says that the economies in Northern and Central Europe are very strong and continue to grow. In Europe more generally, he is seeing a very rapid movement towards globalization to ensure that there's good diversification outside of its core markets, particularly outside of southern Europe.

"You see companies becoming aggressively more global, and that really helps us in two ways," Miller said. He explains that as these European companies become more global, especially through acquisitions, the benefits of cloud computing become more evident because they allow for a relatively easy way to distribute applications around the world without much resistance.

"The other benefit is our application in particular is very well-suited for globalization," he said. Miller points out that the company's technology is already used in 190 countries and available in 41 different languages.

Cornerstone has been generating about 70% of its revenue in the U.S. and approximately 30% of its overall sales overseas. The company is also heavily investing in Asia-Pacific and Latin America.

On Tuesday evening, Cornerstone OnDemand reported a 66% year-over-year increase in revenue for the second quarter ended June 30 of $44.3 million. This surpassed the Wall Street target of $43.34 million, according to a survey of analysts by Thomson Reuters, as bookings rose 55%. The company also noted that average selling prices increased 20% through the first six months of 2013 from last year.

Non-GAAP net loss came in at 7 cents a share versus the average analyst estimate of a 6 cents a share loss.

The company has raised its full-year GAAP revenue guidance to a range of $183.5 million to $185.5 million from $181 million to $183 million and now expects a full-year non-GAAP loss of about $11 million, or 21 cents a share, more than the previously estimated loss of $9 million. The company explained that as it continues to invest in its software, network infrastructure, and services organization to support its top line growth, Cornerstone will incur incremental interest expenses related to its recent five-year convertible debt offering.

GAAP revenues are expected to range from $47.5 million to $48.5 million in the third quarter.

Analysts at Piper Jaffray published a note Wednesday underscoring the company's impressive 55% billings growth rate and raised their price target to $57 from $55 while maintaining an overweight view on the stock and recommending that investors purchase shares on any weakness after the earnings report.

Nomura Securities analysts have cited a similar reason for keeping their "buy" recommendation on the stock after the release, hiking their price target to $54 from $40.

Meanwhile Credit Suisse analysts said in a note Tuesday that the stabilization in the U.S. job market should be a positive for companies such as Cornerstone OnDemand because it could mean more employees to service with their software.

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.>

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