We'd Be Happy Buyers of Guidewire on Price Pullback

Third-quarter revenue rose 14% versus the prior-year period to $140 million, in line with our expectations. License and other revenue fell 15% versus the prior-year period to $50 million, though this decline was exacerbated by some license revenue being pulled forward in the second quarter, while a substantial Tier 1 customer payment is now being collected in the fourth quarter moving forward. Still, the biggest takeaway in the quarter is the continued strength of cloud sales, as 50% of new sales this year have come from cloud-based subscriptions. The firm is trending toward the high end of its anticipated range for cloud sales mix between 30% and 40% for the full year, and management expects that mix to increase to 40%-60% in fiscal 2019. We suspect Guidewire will begin to see existing customers pursue migrations to cloud-based products in the coming quarters, which could accelerate cloud mix in fiscal 2020 and beyond.

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