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Guidewire’s Potential Not Going Unnoticed

Posted on Friday, Mar 23rd 2012

The first technology IPO that came this year belonged to San Mateo–based Guidewire Software. Founded in 2001, Guidewire is an insurance industry focused SaaS player. They offer property, casualty, and workers compensation insurance companies Web-based tools to handle claims, receivables management systems, and underwriting and policy administration. Besides software solutions, Guidewire offers implementation and assessment services for property and casualty companies in North America.

Guidewire’s Financials
Guidewire (NYSE:GWRE) earns revenues through software licensing fees over multiyear contracts. The company also earns service revenues through their implementation and maintenance services.

For year ended July 2011, Guidewire’s revenues grew 19% over the year to $172 million. They ended last year with net income of $35.6 million compared with an income of $15.5 million a year ago. Recently, they announced their first public quarter. Q2 revenues grew 30% over the year to $55.1 million. License revenues in the quarter grew 29% to $25.7 million, and maintenance revenues grew 31% to $6.8 million. Services revenues during the period grew 32% to $22.6 million. They ended the quarter with earnings of $0.17 per share.

Prior to their IPO, Guidewire has received venture funding from investors who include U.S. Ventures, Bay Partners, and Battery Partners. In January, they listed on the NYSE after pricing their IPO at $13 a share to raise $115 million.

Guidewire’s Expansion Plan
Analysts believe that the global property and casualty insurance is worth $1.2 trillion. Guidewire plans to grow within the industry by providing innovative solutions through research and development. They plan to expand within their existing customer base through upselling their PolicyCenter and BillingCenter applications, which help providers handle policy administration and receivables transactions. In addition, the company also plans to grow through strategic partnerships and increased brand awareness.

Guidewire’s management believes that nearly 90% of more than the 7,000 insurance companies use outdated technology systems. According to Gartner in 2010, insurance carriers spent $4 billion on software and $10.5 billion on IT services. Clearly, there is enough market potential for their services. Their current customer list of more than 100 insurance players is but a small share of the insurance sector. The company has strong potential, judging from the stock’s rise, seems to have been recognized by the market.

The stock is trading at $32.28 with a market capitalization of $1.65 billion, significantly higher than the IPO price of $13.

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