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Guidewire Software (GWRE) - Fundamental Investment Case

Research

Publication Date: 19 Aug 2019 - By Robert Prather By Robert Prather
Actionable
Differentiated

Equity Fundamental Equity USA Technology

Guidewire Software Inc. develops and publishes enterprise software for the property and casualty insurance industry. Its InsuranceSuite offers 1) policy administration; 2) claims system; and 3) billing system. Available in either on-premise or cloud and all together or separate. The other offering, InsuranceNow, is a cloud-based system for an all-in-one-solution of policy, billing, and claims management. Analytics and data services are also available. The company has over 350 customers across 40 countries.

Please download the full report for details on the Bear Case outlined below (included in the download is a call with the analyst).

Qualitative Concerns:

  • Increasing competition over the last few years, with the opportunity for others to find success
  • Estimates have been cut twice this year due to cloud transition impacts, customer attrition, and lower SI revenue. The issues cited in the cuts do not seem wholly transitory, and could lead to further disappointment.
  • Customer attrition is higher than historical with varying reasons provided 
  • FY19 results are materially impacted by ASC 606, with disproportional benefits coming from term license signings. Yet apart from 1Q19, revenue growth is not impressive.
  • Restated FY18 and FY17 financials for revenue recognition misapplication

Fundamental Concerns:

  • Indicators of pricing pressure
  • Cash flow generation has fallen year-over-year for two quarters
  • Currently, replacing term (license) business with subscription (cloud) business is margin dilutive
  • Multiples are trading more than 1 standard deviation higher than historical averages and are elevated compared to composite software peer comps

Bottom Line: A company facing business model transition risk, increasing competition, negative estimate revisions, and accounting issues trading at a high valuation.

Guidewire

Source: VR Fundamental

Pages: 50

Released: 19 Aug 2019

Unlock for 35 credits

The Author

Robert Prather

Equity Analyst

Technology, Industrials, Telecom & Media, Consumer

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London, United Kingdom

info@reachx.co
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