Bentley Systems Earnings: Q3 Beat as E365 Subscription Mix Grows; Shares Overvalued

Narrow-moat Bentley Systems reported third-quarter financial results that nicely beat our expectations as well as the market’s on the top and bottom lines. Still, ARR growth was moderated due to its increased sensitivity to the quarter’s total business days, as E365 subscriptions now make up a plurality of ARR. As a reminder, E365 subscriptions charges customers based on daily consumption of Bentley applications. Despite the subscription type’s variability, we like that Bentley has this option as we think it’s a great entry point for SMBs that have the potential to grow their business under Bentley’s customer roster. All in all, the firm maintained its overall outlook for the fiscal year, which we think is fair given E365 variability and the pace of digital transformation ahead for customers. Shares are up 11% upon results, but we think the market is being overly optimistic on the pace of digital transformation of Bentley customers in the near term, as efficiency gains are promising but we think the industry is saturated with inertia. As a result, we are maintaining our $42 fair value estimate, which leaves Bentley shares overvalued, in our view.