GWRE: Guideware

Here is a nice long term opportunity with a short term breakout pending…some of the current long term growth metrics probably don’t meet this boards criteria, but with their move to a cloud based SaaS model, it seems their growth potential is improving.

Like ADBE and MSFT, GWRE is transitioning into the cloud and growing fast because of it. They offer two platforms for Property and Casualty insurance companies InsuranceSuite (on premise) and InsuranceNow (cloud). Right now only 9 of their 227 deployments are in the cloud. Their cloud service capability was obtained in early 2017 when they bought ISCS.

Here are a couple snippets from “The New America Article” this weekend:
https://www.investors.com/research/the-new-america/could-thi…

“The thinking a year ago was that insurance companies are too conservative with data (storage) to adopt a cloud strategy, but given the changing demand environment, Guidewire has embraced (the cloud) pretty quickly,” JMP Securities analyst Rishi Jaluria told Investor’s Business Daily.

The leading software provider for insurers, Guidewire is leveraging relationships with technology partners Amazon (AMZN) Web Services and Salesforce (CRM), which are its cloud providers. It expects cloud subscription sales to rise from 6% of its $514.3 million in fiscal 2017 revenue to a range of 20% to 30% in fiscal 2018
The Gartner report noted that Guidewire has secured nearly 33% of the new customer wins in the property and casualty market, which is three times as much as its nearest competitor.

Guidewire has more than doubled the number of its customers from 158 in fiscal 2013 to 328 in fiscal 2017, with 25 of those customers in the Tier 1 category of more than $5 billion in annual premiums each. And Guidewire isn’t focused just on North America, either; it has a strong global presence, Amladi says

MetLife (MET) is a notable customer win for Guidewire. In a “first-of-its-kind” project, the company recently deployed InsuranceSuite Cloud, in which Guidewire not only built the solution but is operating it on behalf of MetLife. Jaluria notes that while the product has negative margins at the onset, at a scale seen at 12-15 customers, InsuranceSuite Cloud is expected to reach 65% gross margins.

Guidewire announced the acquisition of Cyence, a machine learning technology startup that serves the property and casualty market, on Oct. 6 in a cash-and-stock deal valued at $275 million, including $140 million in cash and 1.4 million shares. The deal is expected to close early in the January quarter.

The transition to the cloud is going to be messy for a bit as a switch to subscription over licensing will delay revenue recognition and they expect margins to decline significantly next year due to an increase in lower margin products. They will also be hiring more cloud production staff.

Earnings 11/27/17

Very strong IBD ratings and first in its stocke group
ChecklistRating
Composite Rating 97 Pass
EPS Rating 93 Pass
RS Rating 88 Pass
Group RS Rating B+ Pass
SMR Rating A Pass
Acc/Dis Rating B Pass

EPS % Chg (Last Qtr) 51%
Last 3 Qtrs Avg EPS Growth 27% (prefer 30%)
Last Quarter % Earnings Surprise 51.3% (nice!)
3 Yr EPS Growth Rate 14% (poor)
Sales % Chg (Last Qtr) 28%
3 Yr Sales Growth Rate 12% (poor)
Debt/Equity Ratio 0%
% Change In Funds Owning Stock 4%
Qtrs Of Increasing Fund Ownership 2

6 Likes

Hi PuddinHead42

Yep I remember reading about this one from a Bert article recently…
https://seekingalpha.com/article/4105893-guidewire-much-slow…

I just couldn’t get excited about its addressable market potential, it’s valuation, historic growth rate and its differentiation - it seems very similar to just about every other online cloud based insurance intermediary player. Patriot National anyone?

I don’t get a Veeva type feel for this, I get a feeling that it crosses the least attractive and highest risk factors of Instructure and Alarm which is to say there’s 100s of thousands of these cloud operators (offering online education/training in Instructure’s case) and the TAM is limited, (how many people want their alarms wired to the internet - I dunno. But then I live in Singapore where no-one has alarms as there is no crime).

Ant