Guidewire Earnings: Another Speed Bump in a Long and Complex Model Transition

Wide-moat Guidewire had been on a roll in terms of quarterly results, but that came to an end with a messy report for its fiscal third quarter. The company reported revenue and profitability shortfalls, while offering mixed guidance. On the positive side, we see clear signs of momentum, with eight go-lives, bigger deals being signed, and an emerging dynamic where the company is starting to see newer systems come up for bid in a desire to move to the cloud. During the quarter the company repurchased 855,000 shares including its normal and accelerated programs. Based on results and guidance, we modestly reduced our growth estimates and are therefore lowering our fair value estimate to $88 per share from $95 previously. We continue to see Guidewire as the primary winner as the property-casualty, or P&C, insurance industry continues to modernize and see consistent momentum in Tier-1 insurers selecting the platform.