Demandware's (DWRE) GMV Commentary Creates More Questions Than Answers; Canaccord Genuity Cuts Price Target to $68
Canaccord Genuity maintained a Buy rating on Demandware (NYSE: DWRE), and cut the price target to $68.00 (from $72.00), following the company's 3Q earnings report. DWRE posted a 5% operating margin in Q3 and increased C2015 net income guidance from breakeven to a $6M profit; subscription revenues increased 47% in constant currency, which is certainly best-in-class among Enterprise e-commerce vendors. However, underlying bookings and GMV commentary left more questions than answers heading into the firm’s seasonally strong Q4 period.
Analyst David Hynes commented, "Demandware’s Q3 results were mixed – headline numbers were nicely ahead of forecast, but underlying bookings and GMV commentary left more questions than answers heading into the firm’s seasonally strong Q4 period. While we were pleased with the better than forecast profit metrics and increase in full year earnings guidance – something for which we had pressed – we believe this will be overshadowed by weakening trends among specialty apparel retailers and uncertainty around the impact on overage revenue during the holidays. Stepping back, we remain quite confident in DWRE’s competitive standing, believe product and geographic expansion can be additive to growth, and expect Q4 to come in at least as strong as slightly reset expectations (as it has in every previous holiday period). Our preview suggested that clients wait out what could be a choppy November for the positive news flow that should follow. With an analyst day in two weeks, which will presumably shine light on the underlying positive trends in the business, and our belief that Q4 will be just fine, we believe investors could use post-print weakness to gradually build positions in DWRE. Reiterate BUY."
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Shares of Demandware closed at $56.12 yesterday.