Bentley Systems Earnings: Annual Recurring Revenue Drag Does Not Cloud Our Long-Term Optimism

We are maintaining our $42 fair value estimate for narrow-moat Bentley Systems, after the firm reported a mixed fourth quarter, with earnings per share coming in above our prior expectations but revenue falling a bit short. Growth in annual recurring revenue was tepid in the quarter, due to customers in China increasingly opting for perpetual licensing, leading to Bentley’s 2024 revenue guidance falling short of our prior estimates. We still think Bentley is well positioned to capitalize on digitization in end markets over the long term, with the opportunity exacerbated by the significant resource capacity gap at engineering firms. Despite the attractive growth profile, shares remain overvalued relative to our unchanged valuation.