Blackbaud Concentrates on Expanding its Bottom Line as It Enters the New Year; Maintain $66 FVE

Narrow-moat Blackbaud reported fourth-quarter results which came in below our revenue expectations, while delivering better profitability. Management laid out its 2023 targets, which while light on revenue, provided a solid pathway for margin improvement toward its Rule of 40 goal. While its 2023 targets face macroeconomic risk, the firm expects its pricing actions, data center closures, improved productivity, and substantial headcount reductions to enable margin expansion, which we expect to be weighted to the back half of 2023. We are also pleased to see improvement in EVERFI bookings and anticipate revenue and profitability upside from the acquisition to bear fruit as the year progresses. Finally, we see recent pricing actions as driving modestly accelerating revenue growth throughout 2023. Balancing near-term headwinds with our long-term profitability outlook, we retain our $66 fair value estimate and view the shares as moderately undervalued.