Guidewire Analysts Remain Divided Over Its Cloud Business Prospects Amid Uncertain Macros

Semangat Membara
  • Wells Fargo analyst Michael Turrin maintained Guidewire Software Inc (NYSE: GWRE) with an Underweight and lowered the price target from $60 to $55.

  • Guidewire’s seasonally light Q1 results were primarily in-line and modestly above Turrin’s estimates with $5 million better-than-expected ARR, $3 million better-than-expected revenue, and operating income of ~$7 million above the analyst’s estimate.

  • However, the FY23 revised guide was relatively unchanged.

  • Management suggested the insurance industry remains relatively stable compared to other more macro-sensitive verticals, indicating customer decision-making and sales cycles have not meaningfully changed.

  • The analyst believes the underlying transition will continue to weigh on this model until the cloud business can show additional signs of maturity and scale.

  • The price cut reflects the underlying business model transition, relatively muted revenue and margin outlook, and lack of FCF support.

  • RBC Capital analyst Rishi Jaluria maintained Overweight with a $100 price target reflecting the analyst’s positive long-term outlook.

  • The most positive to the analyst was a meaningful upside to subscription gross margins and raised FY outlook for 49% margins, increasing his confidence in the path to the FY25 target and eventual FCF margins of 30%+.

  • Additionally, while GWRE is not immune to macro and inflation, dynamics remain stable and a relatively minor headwind, strengthening Jaluria’s view of GWRE’s macro resiliency.

  • While expecting inflation to lead to some conservatism from vendors, the analyst foresees Guidewire’s business to remain more resilient in the current macro environment than most software vendors.

  • Jaluria remains positive on the company’s market leadership, attractive vertical opportunity, and favorable financial model exiting the cloud transition.

  • Price Action: GWRE shares traded higher by 5.5% at $59.59 on the last check Wednesday.

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