What we think about Guidewire (GWRE)
Guidewire in Three Words: Insurance Cloud Platform
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Background
A byproduct of insurance companies existing to assess and underwrite risk is that they are more cautious and leerier of change than companies from other industries. Due to this dynamic, many property and casualty (P&C) insurance companies are still operating on legacy enterprise resource planning (ERP) systems that are ill-equipped to meet modern-day consumer expectations.
Guidewire explains that its platform is built specifically for P&C insurers. It combines core operations, digital engagement, analytics, and artificial intelligence (AI) applications delivered as a cloud service or self-managed software.
Once on Guidewire’s Insurance Suite, customers rarely, if ever, leave. When describing Guidewire’s high switching costs, Morningstar raved, “High perceived friction from changing core systems is not just a theory, it is reality, as Guidewire has not lost a customer to a competitor since it was founded in 2003. The company enjoys the highest retention in the entire software industry.” This is why high switching costs can be such an effective economic moat. Locking in a customer for years at a time is powerful!
Its fiscal 2023 revenue increased 11% to $905 million, driven by a 25% increase in subscription and support revenue to $430 million and only a 3% gain in license revenue to $266 million. Expect subscription gains to be offset by license decreases in the immediate future. This will make for a lumpy journey as Guidewire transitions customers from legacy systems to cloud solutions.
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