Guidewire Software GWRE shares have been performing well on the trading front, with a gain of 53.3% in the past six months compared with the S&P 500 composite and sub-industry’s growth of 9.5% and 14.3%, respectively.
The stock has gained 21.3% since the announcement of better-than-expected fourth-quarter fiscal 2024 results on Sept. 5. GWRE attained its 52-week high level of $176 on Sept. 20 before closing the session at $174.54.
The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average surprise of 84.6%.
Six-month Price Performance
Image Source: Zacks Investment Research
Guidewire is a provider of software solutions for P&C insurers. Its cloud platform boasts a trusted infrastructure with modular and interconnected cloud services to aid insurers in upgrading their core operations. The platform also has scalability as well as the ability to embed analytics and core workflows. The company updates its cloud platform thrice a year to keep the system agile and nimble amid a constantly evolving P&C industry.
Momentum in Guidewire Cloud Bodes Well
The focus on cloud strategy has been paying off for Guidewire, as evidenced by increasing sales. Guidewire Cloud continued to gain momentum in the last reported quarter with 16 deal wins, taking the total cloud wins to 42 for fiscal 2024. Out of these deals, 13 were for InsuranceSuite Cloud, bringing the total InsuranceSuite Cloud deals for the fiscal year to 37. Guidewire’s InsuranceSuite Cloud comprises three primary applications, namely PolicyCenter Cloud, BillingCenter Cloud and ClaimCenter Cloud.
The company reported revenues of $291.5 million, rising 8% year over year. Revenues surpassed the Zacks Consensus Estimate by 3%. The figure also came ahead of the company’s guided range of $279-$287 million. The uptick was driven by solid deal volume across all tiers and increasing sales activity, especially in Asia Pacific and EMEA.
The subscription and support segment’s revenues (52.1% of total revenues) soared 29.4% from the year-ago quarter to $151.8 million. The company’s focus on enhancing the Guidewire Cloud platform with new capabilities is expected to boost sales of subscription-based solutions. The company keeps fostering and expanding its network of partners, which includes SIs and solution providers, to drive sustained activity and greater value from the platform.
Owing to continued traction, the company expects fiscal 2025 total revenues to be between $1.135 billion and $1.149 billion. Subscription revenues are forecasted to be $642 million, representing 34% year-over-year growth.
As of July 31, annual recurring revenues (ARR) were $872 million, up 14.3% year over year. GWRE added that the strong performance of the metric in fiscal 2024 positions the company to achieve its $1 billion ARR target by fiscal 2025. ARR is expected to be in the range of $995-$1,005 million for the ongoing fiscal year.
GWRE’s Improving Margin Performance
Management also remains focused on driving cloud operations efficiently to boost cloud margins. In the last reported quarter, non-GAAP gross margin expanded to 67% from 64% on a year-over-year basis. The subscription and support segment’s gross margin increased 66% from 57.8% on a year-over-year basis, attributed to increased cloud infrastructure efficiency. Services’ non-GAAP gross margin was 14.2% compared with 10.5% in the year-ago quarter.
For the first quarter of fiscal 2025, GWRE expects non-GAAP operating income in the range of $18-$24 million. For the fiscal year, non-GAAP operating income is estimated between $157 million and $171 million.
Estimates Moving North for GWRE
The Zacks Consensus Estimate for fiscal 2025 and 2026 revenues is pegged at $1.14 billion and $1.28 billion, respectively, indicating growth of 16.7% and 11.7% from the year-ago levels.
The estimated figures for fiscal 2025 and 2026 EPS, $1.97 and $2.44, indicate an increase of 45.9% and 24.1%, respectively, from the prior-year actuals.
The consensus mark for fiscal 2025 and 2026 EPS has increased 3.1% and 2.5%, respectively, in the past 60 days, reflecting analysts’ optimism.
Headwinds Persists
Service revenues are getting affected as the company invests more in its ecosystem of implementation partners.
Rising research and development costs and integration risks are major concerns for this Zacks Rank #3 (Hold) company. In the last reported quarter, total operating expenses increased 11.8% year over year to $176.1 million.
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Manhattan Associates MANH, SAP SE SAP and ANSYS ANSS. While Manhattan Associates sports a Zacks Rank #1 (Strong Buy), SAP and ANSYS each carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MANH’s 2024 EPS is pegged at $4.26, unchanged in the past 30 days. MANH’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 26.6%. The stock has surged 40.8% in the past year.
The Zacks Consensus Estimate for SAP’s 2024 EPS is pegged at $4.77. SAP’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters while missing in the remaining two quarters with the average surprise being 4%. The long-term earnings growth rate is 10.9%. Its shares have surged 73.4% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 6.2% in the past year.
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