Skip to Content
Stock Analyst Update

Mixed Results for Guidewire, but Our Thesis Stands

The wide-moat firm still has a runway for growth.

Mentioned:

 Guidewire (GWRE) reported a mixed fourth quarter and end to its fiscal 2018. After rolling our model, we are raising our fair value estimate to $107 per share, from $105 previously, while maintaining our wide economic moat rating. Revenue for the quarter and next fiscal year were in line with our expectations, but Guidewire's margin guidance was on the lighter side. However, we firmly believe our long-term thesis around Guidewire remains intact. Guidewire's growing presence at the top of the market, the expanding number of customers using its nascent cloud platform, and upsell opportunities give us confidence that the firm still has a runway for growth. Guidewire's offerings in the P&C niche are largely unparalleled, with the firm being protected by adamantine switching costs. These factors give us confidence in our modest fair value increase, and with shares once again trading at a discount to our fair value estimate, we see this as an attractive entry point for this name.

Guidewire reported $661 million in revenue and the firm now has 380 total customers (up from 328 last year), aided by 15 new customer wins in the quarter. Color from the conference call indicated that the vast majority of these wins were in Europe, where the firm has been strategically focusing on penetrating the fickle European P&C insurance market. European customers have historically bought from regional software vendors and look to partner with vendors with referenceable customers in similar geographies. Thus, we believe Guidewire's traction in Europe today will lead to easier incremental wins ahead. Our valuation thesis remains very simple, while Tier 1 P&C insurer penetration remains robust, as the firm had 28 of the 70 Tier 1 Insurers, wallet share remains much lower. Tier 1 insurers write more than $5 billion in direct written premiums, representing the largest market opportunity, but oftentimes Guidewire sells only one or two products to these customers.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

William Fitzsimmons does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.