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Guidewire Software’s GWRE shares have been performing well on the trading front with a gain of 54.8% in the past year compared with the S&P 500 composite and the industry’s growth of 26.4% and 27.5%, respectively.
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Closing last session at $168.86, the stock is trading 19.3% down its 52-week high of $209.15. Does this recent pullback indicate a buying opportunity? Let us dive into GWRE’s prospects and determine the best course of action for your portfolio.
Guidewire Cloud Is the Key Tailwind
Accelerating the uptake of Guidewire Cloud is a major tailwind. In the first quarter of fiscal 2025, Guidewire won nine deals, out of these, seven were for InsuranceSuite Cloud and five were with Tier 1 insurers. The company's focus on enhancing Guidewire Cloud platform with new capabilities, including digital frameworks, automation, tooling and other cloud services is expected to boost sales of subscription-based solutions in the long haul.
Driven by strong revenue performance in the fiscal first quarter, Guidewire expects total revenues for fiscal 2025 to be between $1.155 billion and $1.167 billion compared with earlier guidance of $1.135-$1.149 billion. Subscription revenues are forecasted to be $648 million, while subscription and support revenues are expected to be $713 million. Services revenues are expected to be approximately $205 million.
As of Oct. 31, ARR was $874 million, up 13.5% year over year. It continues to expect ARR for fiscal 2025 to be in the range of $995-$1,005 million.
GWRE’s Improving Profitability and Balance Sheet
Management’s efforts to drive cloud operations efficiency to boost cloud margins remain an additional tailwind. In the fiscal first quarter, gross margin expanded to 63.5% from 58.4% on a year-over-year basis. The subscription and support segment’s gross margin increased to 70.3% from 65.4% on a year-over-year basis, attributed to higher-than-expected revenues and increases in cloud infrastructure platform efficiency.
Services’ non-GAAP gross margin was 19.7% compared with 10.3% in the year-ago quarter, due to solid utilization rates and reduced subcontractor costs. For the second quarter of fiscal 2025, non-GAAP operating income is estimated in the range of $39-$45 million, while for the fiscal year, the figure is estimated to be between $164 million and $176 million.
Guidewire has a strong balance sheet. As of Oct. 31, 2024, cash and cash equivalents and short-term investments were $1,480.4 million with $671.8 million of long-term debt. The solid liquidity position indicated that the company had made investments in the right direction and the excess cash would be used for pursuing strategic acquisitions, investing in growth initiatives and carrying out distribution to its shareholders.