TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

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<p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p>
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<p>Summary: <a href="https://www.smartkarma.com/entities/guidewire-software-inc" target="_blank" data-smartkarma-citation="entities:15448:1" rel="noopener">Guidewire Software (GWRE US)</a>, the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth <a href="https://www.smartkarma.com/entities/adobe-systems-inc" target="_blank" data-smartkarma-citation="entities:8357:1" rel="noopener">Adobe Systems (ADBE US)</a> or <a href="https://www.smartkarma.com/entities/autodesk-inc" target="_blank" data-smartkarma-citation="entities:13211:1" rel="noopener">Autodesk Inc (ADSK US)</a> like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.</p>
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<li>Base Case PT: $80                     </li>
<li>Upside PT: $120                                   </li>
<li>Bear Case PT: $55</li>
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<p>In Part I, we examined Guidewire's history, TAM, and competitive positioning. In this piece, we walk through the mechanics of the short case. </p>
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Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.




Summary: Guidewire Software (GWRE US), the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth Adobe Systems (ADBE US) or Autodesk Inc (ADSK US) like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.



Base Case PT: $80                     
Upside PT: $120                                   
Bear Case PT: $55

In Part I, we examined Guidewire's history, TAM, and competitive positioning. In this piece, we walk through the mechanics of the short case. 


Guidewire Software: Short This SaaS Transition II (Building the Short Case)

<div class="content-highlight">
<p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p>
</div>
<p><strong>Summary</strong>: <a href="https://www.smartkarma.com/entities/guidewire-software-inc" target="_blank" data-smartkarma-citation="entities:15448:1" rel="noopener">Guidewire Software (GWRE US)</a>, the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth <a href="https://www.smartkarma.com/entities/adobe-systems-inc" target="_blank" data-smartkarma-citation="entities:8357:1" rel="noopener">Adobe Systems (ADBE US)</a> or <a href="https://www.smartkarma.com/entities/autodesk-inc" target="_blank" data-smartkarma-citation="entities:13211:1" rel="noopener">Autodesk Inc (ADSK US)</a> like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.</p>
<ul>
<li><strong>Base Case PT: $80                      </strong></li>
<li><strong>Upside PT: $120                                    </strong></li>
<li><strong>Bear Case PT: $55</strong></li>
</ul>
<p>The Insight is meant to be used by investors as a road map to evaluate Guidewire’s  progress over the next few quarters. We start with a Best Working Thesis which reflects our initial conclusions from the case study. Key Questions positively answered would make us incrementally more bullish, while evidence of rising Thesis Threats may potentially puncture our view.</p>


Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Summary: Guidewire Software (GWRE US), the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth Adobe Systems (ADBE US) or Autodesk Inc (ADSK US) like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.

Base Case PT: $80                      
Upside PT: $120                                    
Bear Case PT: $55

The Insight is meant to be used by investors as a road map to evaluate Guidewire’s  progress over the next few quarters. We start with a Best Working Thesis which reflects our initial conclusions from the case study. Key Questions positively answered would make us incrementally more bullish, while evidence of rising Thesis Threats may potentially puncture our view.

Guidewire Software: Short This SaaS Transition I (Fundamentals)

United States

Tyler Technologies, Inc. provides end-to-end information management solutions and services for local governments. The Company's client base includes local government offices throughout the United States, Canada, Puerto Rico, and the United Kingdom.

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Tyler Technologies (TYL US)

Guidewire Software: Short This SaaS Transition II (Building the Short Case)

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental...

Aaron Gabin

Guidewire Software: Short This SaaS Transition I (Fundamentals)

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental...

Aaron Gabin

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)