Guidewire (GWRE) Surges as Top and Bottom Lines Exceed Estimates

Shares of software company Guidewire (GWRE: Charts, News) soared over 11% yesterday, after the company reported a strong fourth quarter profit and revenue growth that exceeded analyst expectations. Guidewire specializes in niche software for the property and casualty insurance industry, which is used to organize underwriting, claims management and billing.

Since going public in January, the stock has more than doubled from its IPO price of $13, despite macro economic problems weighing down the broader tech market. Daily Chart
The fourth quarter marks a stark turnaround for the company, which had posted weaker-than-expected profits over the last two quarters, despite rising revenue. Guidewire reported earnings of 6 cents per share, or $3.5 million, on revenue of $67.6 million. This was a significant improvement from the loss of $1.2 million it posted a year earlier, on a 33% increase in revenue. Analysts had expected Guidewire to earn 4 cents per share on revenue of $62 million. Guidewire attributed its strong earnings to a rapidly aging technological infrastructure in property and casualty insurers, which has left many of these companies behind the digital curve. Many insurers lack strong e-commerce initiatives and experienced IT professionals to help bring their systems up to date. Operating expenses dropped 5.5%, but gross margin also dipped from 63% to 59.7%. Services revenue, its biggest sales generator, soared 61%, while license revenue rose 11% and its maintenance segment grew 33%. During the quarter, Guidewire's PolicyCenter and BillingCenter segments expanded overseas with significant deals in Europe. The company signed with U.K. insurer Aviva to maintain its domestic commercial lines business. This also gives Guidewire a foothold in Canada with Aviva's subsidiary, Aviva Canada. Guidewire also signed with PZU, the largest insurer in Poland, to provide similar services. The company noted that the PZU deal was intended to be an "anchor" for its Central and Eastern European businesses, which are notably growing faster than its Western European and North American businesses. Guidewire also inked similar deals with Santam, the largest insurer in South Africa, and Pacific Seguros, the second largest insurer in Peru, to expand into Africa and Latin America, respectively. This strong global demand for bringing aging tech infrastructure at insurers up to speed has kept Guidewire firmly in a positive feedback cycle. Guidewire received a strong vote of confidence in the United States when Nationwide Insurance, which owns $17 billion in premiums and covers 16 million policyholders, licensed Guidewire's ClaimCenter services. The company noted that Nationwide is the first tier 1 insurer in the United States to purchase a packaged software product to oversee its primary business lines. Guidewire finished fiscal 2012 with 50 customers with over $1 billion in yearly premiums each. Eight of these customers had premiums of over $5 billion. CEO Marcus Ryu was upbeat regarding the company's growth prospects, but noted that although Guidewire was dominating its industry, competitors would soon crop up in its niche market. "Our ambition is unchanged, to win in the land-grab happening in our space over the next few years in order to create a large and highly-profitable company over the long term," commented Ryu during the conference call. "Going into 2013, I believe we are better-positioned than ever to fulfill this ambition based on our competitive position and market momentum." Shares of Guidewire still have a lot of growth priced in, trading at 66.5 times forward earnings. The stock has had a volatile ride, trading between $16.45 and $38.13 over the past nine months. The stock does not currently pay a dividend. Other News About GWRE Guidewire Swings to Q4 Profit as Revenue Rises Guidewire surges on strong fourth quarter earnings. Guidewire Software's CEO Discusses F4Q12 Results Marcus Ryu discusses the company's future. Other Stocks in the News Meatless McDonald's: Way to Go or Effort to 'Humiliate Hindus'? Will a vegetarian McDonald's work in India? Facebook Stock Jumps After CEO Pledges Not to Sell Zuckerberg pledges not to sell Facebook stock for a year; shares stabilize. Copyright 2012 by, Inc. 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Published on Sep 6, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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