Shares of Guidewire Software (NYSE:GWRE) fell over 14% following its mixed third-quarter (Q3) financials. What irked the investors most was the near-term pressure on annual recurring revenue, or ARR. Further, macro headwinds pose challenges.
The software company that offers a platform for property and casualty insurance carriers reported total revenue of $207.5 million in Q3, up 5% year-over-year. Meanwhile, it posted an adjusted loss of $0.08 per share, which was better than the Street’s forecast of a loss of $0.14 per share.
The company closed eight cloud transactions in Q3 and improved its operating efficiency, which resulted in top-line growth and supported margins.
Despite the improvement, management didn’t increase its ARR outlook and expects it to be between $745 million and $755 million in Fiscal 2023. In fact, the company reduced the upper range of the ARR outlook to $755 million from $760 million.
GWRE also lowered its full-year revenue outlook to $890 million and $900 million, respectively. Earlier, it projected its top line to be in the range of $894 million and $904 million.
The company’s management stated that they are witnessing steeper ramps, implying less ARR in the first year of the new sales arrangements. Further, the ongoing macro headwinds continue to remain a challenge. Thus, management is not providing a higher ARR outlook for Fiscal 2023.
In a note dated June 1, Oppenheimer analyst Kenneth Wong stated that the slight reduction in the ARR outlook could hurt GWRE stock. Even then, he reiterated a bullish outlook on the stock due to “improved execution towards LT (long-term) margins.”
On the contrary, Needham analyst Mayank Tandon doesn’t see a near-term catalyst for GWRE stock. However, the analyst expects the company to benefit from the ongoing shift towards cloud-based solutions. Tandon has a Hold rating on GWRE stock.
Is GWRE Stock a Buy, Hold, or Sell?
The Top Wall Street analysts are cautiously optimistic about GWRE stock. Notably, TipRanks identifies the top analysts per sector, per timeframe, and against different benchmarks. The ranking reflects an analyst’s ability to deliver higher returns through recommendations. Following the ratings, TipRanks’ algorithms calculate the statistical significance of each rating, the analysts’ overall success rate, and the average return.
Among the four top analysts giving ratings on GWRE stock, two recommend a Buy, and two suggest a Hold. Further, the consensus 12-month price target of all top analysts is $86, implying 21.31% upside potential from current levels.
