Elli Encompass Consumer Direct
Image: Ellie Mae.

The mortgage market is a multi-trillion dollar industry, and helping major financial institutions manage their mortgage assets is a specialty for Ellie Mae (NYSE:ELLI). Ellie Mae provides software that lenders use for their residential mortgage businesses, and coming into Thursday's fourth-quarter financial report, Ellie Mae shareholders have generally been comfortable with the trajectory of the housing market. Yet because of downturns in the broader enterprise-software industry that knocked Salesforce.com (NYSE:CRM) for a loop recently, Ellie Mae stock has also been under pressure. Let's take a closer look at what we're likely to see from Ellie Mae and whether investors have anything to worry about its core business going forward.

Stats on Ellie Mae

Analyst EPS Estimate

$0.21

Change From Year-Ago EPS

(45%)

Revenue Estimate

$61.35 million

Change From Year-Ago Revenue

32%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Ellie Mae earnings keep outpacing expectations?
In recent months, investors have reined in their long-term expectations for Ellie Mae earnings, cutting their full-year 2016 projections by a nickel per share. Until its February plunge, Ellie Mae shares had performed well, but after the decline, Ellie Mae is down 2% since early November.

Ellie Mae's third-quarter results in late October showed just how solid the mortgage-software company's business has been lately. Both revenue and adjusted net income jumped more than 60%, and that produced earnings that beat expectations by a dime per share. Growth in active user counts and cloud-based subscribers were strong, and Ellie Mae also boosted the average revenue per user under its software umbrella. Although Ellie Mae warned that the fourth quarter could be relatively slow because of seasonal factors, it gave positive guidance for the full year.

Since then, Ellie Mae has continued moving forward with new releases in its popular software suites. In December, the company announced the new release of its Encompass all-in-one mortgage management solution, offering important updates to meet compliance requirements, provide overnight mortgage-rate protection for secondary marketing purposes, and integrating the AllRegs' Market Clarity business information tool for risk management.

Earlier in February, Ellie Mae followed up with the launch of its Ellie Mae Pro consulting partner program. The purpose of the program is to get more customers to adopt the Encompass package by offering third-party consulting firms the chance to enter partnerships with Ellie Mae on implementing the mortgage-software platform. By offering training and certification opportunities, Ellie Mae hopes to expand its sales by effectively getting more people on its team.

The big question that investors have now is whether Ellie Mae will prove vulnerable to the same factors that have hit other parts of the enterprise-software industry. Salesforce.com and several of its peers saw their stocks fall sharply after Tableau Software CFO Tom Walker said that enterprise-spending trends were weakening in the North American market. For Tableau, which specializes in data visualization services, that trend spelled potential trouble in continuing to grow revenue at a healthy pace. Investors also believed that Salesforce.com and other big players in the broader enterprise-software and data-analytics realm could also suffer from that downturn. Yet with the mortgage market remaining relatively strong, it's questionable whether Ellie Mae will fall prey to the same phenomenon going forward.

In the Ellie Mae earnings report, investors should focus on how well the software company is doing at forging relationships with new financial institution customers and expanding existing relationships with mortgage lenders. Current uncertainty about the future direction of mortgage rates has made some housing-market analysts nervous about whether home prices will be able to keep rising, and a housing-market downturn could send mortgage activity falling. Nevertheless, as long as Ellie Mae's customers understand the cyclical nature of the mortgage market but recognizes the long-term value of its mortgage management software, then Ellie Mae should be able to keep producing the growth that has given long-term shareholders solid returns.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ellie Mae. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.