Narrow-Moat Blackbaud Is a Leader in a Sleepy Niche; Fair Value Estimate Down to $66

We revise our economic moat rating for Blackbaud to narrow from wide, as we have less confidence in the firm’s ability to generate excess returns over a long-term horizon. As we adjust our model for expected growth and profitability, we also lower our fair value estimate to $66 per share from $70. We expect Blackbaud’s cloud transition and improved salesforce productivity to boost profitability within the next decade. However, Blackbaud operates in a mature market with lower margins and high sensitivity to economic shocks. The software landscape is also evolving, creating opportunities for competitors. We believe these factors may outweigh Blackbaud’s fundamental performance, and our confidence in the firm’s ability to sustain returns beyond a 10-year horizon is diminished.