Nice Earnings: Stock Dips on Cloud Growth Worries; Shares Undervalued

Narrow-moat Nice NICE reported second-quarter revenue and EPS figures that were generally in line, and guidance for the third quarter was similarly within expectations. Nevertheless, the shares closed down 8% on the day. We surmise the share price reaction is due to slightly lower-than-expected growth in cloud revenue, which may further decline somewhat in the second half of the year. We’ve trimmed our cloud growth expectations slightly for the next few years, which reduces our fair value estimate by around 5% to $265 from $280. Furthermore, we continue to think the shares are undervalued.

Cloud revenue growth was 23% in the second quarter, within the annual guidance range of 22%-25% for the year but down from 25% in the first quarter. The soft macroeconomic environment is having an impact on consumption-based contracts, which will likely continue in the second half of the year. Consequently, our 24% cloud revenue growth estimate for 2023 now looks aggressive. As such, we’ve reduced our 2023 estimate to 22% and also trimmed the next few years given the uncertainty. We continue to expect cloud growth to exceed 20% over the next several years.

Guidance for the third quarter included Non-GAAP total revenue of $590 million-$600 million (7% growth at midpoint) and Non-GAAP fully diluted EPS of $2.10-$2.20 (12% growth at midpoint). For the full year, guidance is now for non-GAAP total revenue of $2.353 billion-$2.373 billion (8% growth at midpoint) and non-GAAP fully diluted EPS of $8.40-$8.60 (12% growth at midpoint).