Goldman Removes Mimecast From 'Buy' List, Downgrades To Neutral

Competition for Mimecast Ltd MIME has intensified significantly, especially from large email incumbents. Goldman Sachs’ Heather Bellini downgraded the rating for the company from Buy to Neutral, while reducing the price target from $12 to $10.50.

“Our Buy was based on MIME’s ability to drive revenue upside by upselling its existing customers as well as expanding its customer base as it capitalized on the migration of email infrastructure workloads to the cloud,” analyst Heather Bellini wrote.

Competition Rising

The competitive landscape had worsened. Bellini commented that while there continues to be significant market opportunity for email management shifting to the cloud, it has become more difficult for Mimecast to drive revenue upside in view of intensifying competitive pressure from large email incumbents.

Microsoft Corporation MSFT indicated that the number of users with built-in security on Office 365 had grown sequentially by 25 percent in its December quarter.

“Microsoft also introduced Office 365 E5 in December, its first enterprise suite which includes advanced threat protection and archiving functionality as default features. Our more cautious view primarily reflects what appears to be a concerted effort by Microsoft to innovate in this area which could lead to elongated sales cycles at best or translate into share loss for Mimecast over time at worst,” the analyst wrote.

The rising competition makes risk/reward less favorable, the Goldman Sachs report mentioned. The EPS estimates for 2016 and 2017 have been reduced from $(0.08) to $(0.09) and from $(0.13) to $(0.17), respectively.