Blackbaud Earnings: Impressive Margin Expansion Builds Confidence in Achieving Rule of 40

Narrow-moat Blackbaud reported second-quarter results that were slightly below our revenue expectations while delivering upside against our bottom-line estimates. Management reiterated its fiscal 2023 targets and affirmed that Blackbaud is on track to achieve its Rule of 40 goal by the end of fiscal 2023. While its 2023 targets are exposed to macroeconomic risk and seasonality, we expect the firm’s pricing actions, data center closures, and improved productivity to continue to drive margin expansion in the back half of the year. We are also pleased to see strength in bookings bolstered by Everfi and expect revenue and profitability upside from the acquisition to accelerate. Balancing near-term expectations with our long-term outlook, we maintain our $70 fair value estimate and view the shares as fairly valued.