Over the past 12-months, the share price of California, US-based enterprise software solutions provider Guidewire Software Inc (NYSE:GWRE) has barely escaped its current trading range of ~$100 with a 52-week high of $109.06 and a low of $73.82 at one point in December 2018.
That’s because the company, which develops and publishes software solutions for the property and casualty insurance industry, is under the cosh from increasing competition and does not have all the answers just yet, making it a bear case, according to a new equity research report.
In its recent examination of Guidewire's fundamentals, US-based Vision Research noted that the company’s customer attrition is higher than historical averages, despite its global diversified base spread across 40 countries.
Guidewire's InsuranceSuite product offers policy administration, claims and billing systems, either on-premise or cloud and all together or separate. Additionally, InsuranceNow, is its cloud-based system for an all-in-one-solution of policy, billing, and claims management.
But the emergence of competing products over the last few years have seen the company’s estimates revised down twice this year alone. Guidewire attributed this to cloud transition impacts, customer attrition, and lower SI revenue, but the VR report suggests the issues cited in the cuts “do not seem wholly transitory, and could lead to further disappointment.”
The research firm points out that apart from 1Q19, the company’s revenue growth is currently not impressive, and it has restated FY18 and FY17 financials for revenue recognition misapplication.
“There are clear indicators of pricing pressure as cash flow generation has fallen year-over-year for two quarters. Currently, replacing term (license) business with subscription (cloud) business is margin dilutive,” VR says.
Risks are “heightened” for further revenue challenges with the application of a new standard and numerous contracts renewed in the current year.
Overall, Guidewire faces business model transition risks with headwinds including pricing pressure, customer attrition and increasing competition, not to mention accounting issues that do not augur well for its share price.
For more, download and read Vision Research's full report on the fundamental investment case for Guidewire Software Inc, via ReachX’s research marketplace.
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