NEW YORK ( TheStreet) -- Software maker E2open ( EOPN) retained its consensus "buy" recommendation on Wall Street this week, as large investors brushed off some of the more tepid numbers in the company's latest quarterly earnings performance update.
Investors were interpreting these figures as a reflection of the on-demand software solutions company's progress in strengthening revenue streams at its key, subscriptions and support line and anchoring its position as a premier software services provider in the specialized area of supply chain planning and execution. In order for the company to continue focusing on its high growth subscriptions and support business, E2open is developing a heavier reliance on a partnership "ecosystem" for carrying out its professional services obligations involving solution consulting and deployment. The endeavor has required sacrifice as the company has had to devote a great deal of its resources and rack up extra expenses in order to train its partners for these roles.
In the meantime, E2open's cash flows took a hit following a July acquisition of software supply chain company ICON-SCM of Karlsruhe, Germany to fortify its position in this niche cloud area; two-thirds of the icon purchase was done in cash and third in stock. E2open's CEO Mark Woodward told TheStreet the negative cash flow won't become an issue in keeping the company running as it has set up a bank line as a backstop measure and can always go to market for another share offering.
"We'll have these short term fluctuations and profitability and cash flow and services revenue, as long as you continue to see healthy growth in the subscription line, that's really what matters most," CEO Mark Woodard told TheStreet late Friday. "Our shareholders know that as well, and the story we've been telling for a long time is that our focus is on growing the subscription revenue part of the business, and that's where we want to pay attention."
Woodard sees subscriptions and support line growth of 40% exiting the fourth quarter, which he estimates is an "extremely" fast growth rate for a software-as-a-service (SaaS) company and is an acceleration from the growth of 30% in the second quarter. He anticipates this growth momentum to roll into fiscal 2015. E2open added such customers during the second-quarter as the Coca-Cola KO joint-venture of Coke Mexico, which uses E2open to gain greater visibility into its bottlers; and global skin care company and NIVEA lotion owner Beiersdorf, which utilizes E2open's products to keep track of product shelf life and arrival times in order to prevent excess inventory from building in the channel.