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Concur Technologies Stays Neutral

CNQR

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We are reaffirming our Neutral recommendation on Concur Technologies (CNQR - Analyst Report). The company witnessed a strong third-quarter fiscal 2012, outperforming its expectations. Revenue increased 27% year over year, above its previous expectation of 25%. Based on the overall performance in the quarter, Concur raised its revenue, operating margin, earnings and free cash flow expectations for fiscal 2012. The company benefits from a significant increase in travel transaction volume and quick returns on investments in new markets, such as the SMB market and the unmanaged travel market. However, the uncertain macroeconomic environment remains a matter of concern. Furthermore, the company is heavily dependent on sales of a smaller number of solutions.

Concur Tech's services are expected to be very employee friendly. Its on-demand Employee Spend Management solutions are easy for employees to use, so adoption is rapid. It has low set up costs with low monthly subscriptions. There is no cost for upgrades, which ultimately results in low total cost of ownership. The company has a well-defined software development methodology, which allows it to deliver products that satisfy business needs and meet commercial quality expectations. Its systems development and programming group teams up with the marketing department to assess market needs and requirements. It also uses independent development firms or contractors, when needed, to expand the capacity and technical expertise of its internal research and development team.

Valuable long-term drivers for the company include its investment in the emerging markets, its geographic expansion and customer retention (in which Concur leads the industry in client satisfaction). Concur’s relationship with American Express continues to grow and serve the needs of both partners. Further, the company benefits from significant increase in travel transaction volume and quick returns on investments in new markets, such as the SMB market and the unmanaged travel market. Over the long term, the company expects to benefit from its investment in content aggregation and delivery, big data and mobile computing. Through this, the company is expected to build a strong position in the $1 trillion corporate travel market. The company plans to double its distribution capacity by the end of fiscal 2013 through significant increase in investment across its business.

With an increasingly stronger balance sheet, Concur has the capacity to witness the organic growth of the business through selective acquisitions and investments. The company’s continued investments in innovation provide greater opportunity to participate in the travel and expense management process. Concur Technologies expanded its foundation with the acquisition of TripIt and the formation of Concur Japan. The company expects TripIt to be an appreciable stream of revenue in fiscal 2012 and a significant stream of revenue in fiscal 2013. Concur signed a strategic partnership and made a $40 million equity investment in Cleartrip, which is India's second-largest and fastest-growing online travel agency.

However, Concur Technologies is dependent on the sales of a smaller number of solutions. A decline in demand for any of those solutions could substantially harm its results of operations. The company’s revenue is primarily generated from four solutions, Concur Travel & Expense, Concur Expense, Concur ExpenseLink and Concur Cliqbook Travel.

Concur depends upon strategic relationships with third parties, including American Express Travel Related Services Company Inc. Its revenues will decline if it is unable to sustain and develop these relationships.

Concur Technologies currently holds a Zacks # 3 Rank implying a short-term ‘Hold’ recommendation on the stock.

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