MORGAN STANLEY & CO. LLC
James E Faucette
April 23, 2015
MobileIron Lack of Visibility Amplifies Stumble
Industry View: Cautious
Stock Rating: Equal-weight
Price Target: $7.00
MOBL pre-annnouced results Wed, expecting rev to come in ~8% below previous guidance. Little explanation was given for the miss, which combined with the CFO departure and a lack of model transparency leaves us increasingly cautious. We are revising our PT to $7 from $13 and our rating to EW. Large miss combined with CFO departure. MOBL pre-announced Q1 results Wednesday, expecting non-GAAP rev of $32mm to $33mm, ~8% less than the midpoint of previous guidance of $34mm to $37mm and nearly 9% below our est of $35.8mm. This indicates 22% Y/Y growth, but -12% Q/Q growth. The company stated the miss was largely the result of multiple large deals from North America that did not close and a mix shift by customers to monthly subscriptions, but did not indicate the degree to which either contributed. The company also revised billings guidance downward to $35.5mm - $37.0mm, ~12% less than the midpoint of previous guidance of $40mm - $42mm and 12% less than our est of $41mm. The company did not revise EPS guidance. The company also announced that their CFO, Todd Ford, would be departing.
Lack of sales visibility hurts. The March quarter miss seems to make clear that the company has less channel visibility and control than thought. MOBL is all indirect sales, but they attempt to have direct sales participation in every deal, but the 1Q miss, particularly on increased monthly billing rather than perpetual licensing, leads them to believe that some customers were looking at bids from multiple vendors, and they chose the monthly billing instead. The lack of visibility into how deals are progressing, as well as how those deals will be constructed (e.g. perpetual, subscription) seems to have contributed to the quarterly shortfall. Additionally, MOBL does not provide any KPI metrics (e.g. subscribers, users, average pricing or monthly ARPU metrics) that would allow investors to see progress developing long-term subscriber value.
Concerns the market isn’t growing that quickly. When we look at the recent struggles of other competitors, we are concerned that the market isn't growing that rapidly. Further, MSFT is starting to beginning to show up with a cheaper alternative solution a lot more frequently in competitive evaluations.
Adjusting results downward, revising PT and rating downward. Given the miss comes within the first few quarters of being public, and the lack of transparency into the miss or the business model, we expect that it will be difficult for the company to trade above ~2.5x EV/16e rev for the next year. While we still believe MobileIron can gain be a share winner, their lack of control over distribution makes executing on that opportunity increasingly difficult. One potential positive outcome may be that the Board and VC investors may be more willing to consider a potential sale of the company at 3-4x revenue. We are bringing down Q1 results to 22% growth Y/Y ($32.4mm in revenue) and taking down 2015 rev to 21% growth ($153mm), from the previous 34% growth ($35.8mm) in Q1 and 34% growth in 2015 ($170mm). We are lowering our rating to Equal-weight, and our price target to $7 from $13, a significant discount to other software comparables at ~4-5x EV/16e revenue, but appropriate in the near term until the company can demonstrate better execution.