RightNow Downgraded to Neutral - Analyst Blog

We downgraded our recommendation on RightNow Technologies Inc. (RNOW) to
“Neutral" from “Outperform".
 
RightNow Technologies is a leading provider of on-demand customer
relationship management software solutions designed to optimize customer
service operations for businesses of all sizes.
 
The company reported in-line numbers for the first quarter of 2010, driven
by strength in recurring revenues (software, hosting and support
revenues).
 
However, the increase in operating expenses resulted in a decline in
operating margin. Operating expenses accounted for 63% of total revenues
compared with 62% in the last quarter and 60% in the first quarter.
Operating margin came in at 1.75% compared with 2.8% in the year-earlier
quarter. Earnings per share came in at 2 cents, in line with the Zacks
Consensus Estimate.
 
In March, RightNow launched its new Cloud Services Agreement (CSA) with
unique features and the company has already received good feedback from
its customers. Out of the 14 deals exceeding $1 million in the first
quarter, 9 were on CSA.
 
Demand for the company’s products remains strong despite the
discontinuation of the perpetual model. However, margins will be under
pressure in the near term due to the ramp up of new services and increased
hiring. This might have a negative impact on the bottom line. We do not
see much of an upside from this level as of now.
 
The on-demand market has very low barriers to entry, and with the entry of
SAP and Oracle (ORCL), competition for new deals looks to heat up
dramatically in 2010 and beyond. This could hinder growth going forward.
 
Hence, we downgrade our recommendation to NEUTRAL from OUTPERFORM, which
is supported by the Zacks Rank #3.