Guidewire Is Exceedingly Compelling
Despite guidance cut, we remain confident in the firm's ability to maintain its footprint and expand existing relationships across multiple touch points with their cloud platform.
Guidewire (GWRE) reported a solid fiscal first quarter, exceeding guidance as well as consensus expectations on both the top and bottom lines. While the numbers were somewhat obfuscated by a change in accounting standards which causes previously ratable revenue to be recognized up-front, the results indicated strong underlying demand. The firm cut revenue guidance for the full year, as some cloud deals are taking longer to close than management anticipated. Still, we remain confident in the firm’s ability to maintain its footprint as well as expand existing relationships across multiple touchpoints with their cloud platform. Thus, we will maintain our wide moat rating, as well as our fair value estimate of $114 per share. On a day where negative macroeconomic sentiment had already pushed the broader market downwards, the news drove shares even further into four-star territory. We view current levels as exceedingly compelling.
Revenue came in at $179.7 million, representing year-over-year growth of 66%, driven by a 210% uptick in license and subscription revenue to $94.3 million. Adjusted operating margin was 17.6%, versus minus 7.7% in the year prior. We expect margins to widen as cloud and subscription adoption ramps, though there will be fits and starts along the way.
Guidewire now expects fiscal 2019 revenue to be in the range of $722-$732 million, versus a range of $740.5-$752.5 million previously. Management’s initial fiscal 2019 guidance assumed faster deal closure for a few of their InsuranceSuite cloud deals. The revenue guidance cut was driven by decreased expectations for services revenue, as the pushbacks in deployment also mean a delay in the recognition of revenue the firm accrues for assisting with implementation. While we would have expected Guidewire’s years of expertise to facilitate a level of foresight and prevent management from overshooting guidance, we are not shocked by the delays, given the labyrinthine nature of insurance regulations.
|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.|
Ali Mogharabi does not own (actual or beneficial) 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:
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.