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Stock Analyst Update

Blackbaud Cuts Near-Term Outlook

We believe the wide-moat firm's position as the premier software provider within the nonprofit space remains fully intact.


On Oct. 8,  Blackbaud’s (BLKB) management lowered its revenue and profitability targets for 2018, citing a decline in one-time services revenue, lower transactional revenue and, to a lesser extent, lower subscription revenue. After incorporating the new guidance and adjusting for near-term business changes, we are lowering our fair value estimate to $102 for wide-moat Blackbaud. Nonetheless, we believe the firm’s position as the premier software provider within the nonprofit space remains fully intact and while the shift to recurring revenue may be occurring in a more dramatic fashion than first anticipated, our long-term thesis remains in effect. We expect management to provide further details at its analyst day on Oct. 10.

Management had indicated in the second-quarter results that declines in one-time services sales would steepen. However, the speed of the decline increased beyond initial expectations and guidance is now for a roughly 15% decline in service sales for the year. Related to this, subscription revenue is also anticipated to be lower than originally expected due a slight increase in customer attrition as the firm attempts to transition customers from service agreements to the new subscription platforms. We reiterate our view that long-term, the move to subscription-based revenue will help increase predictability and customer stickiness. It was also previously indicated that variability within the payments business would result in lower sales. However, due to the lack of natural disasters and other one-time events in North America, as well as a lack of confidence within the U.K. charitable giving space due to high profile controversies, the outlook for payments sales was also cut.

Management now expects full-year 2018 non-GAAP revenue to increase by roughly 7% versus the prior guidance of more than 11%. Similarly, adjusted earnings per share are now anticipated to increase by 12% versus the prior estimate of 26% due to the expedited mix shift.

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

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