Guidewire’s Ambiguous Q3 Results, And The Market’s Manic Reaction

Guidewire’s Ambiguous Q3 Results, And The Market’s Manic Reaction

The market reacted in manic fashion to Guidewire’s fiscal Q3 financial results. Initial jubilation sent GWRE up over 10% at market open, but that was quickly displaced with selling that saw the stock give up all its early gains, and then some.

GWRE Price Chart Q3 2012 Earnings

“Yes, yes…NO!” – Mr. Market reads through ALL the bullets in Guidewire’s press release. (Chart via Google Finance)

With Guidewire beating expectations and raising future guidance in the earnings announcement, I would bucket this as indigestion of good news, which is often a foreboding sign for the asset in question. Now that I’ve had a chance to listen to the quarterly conference call and read the 10-Q, let’s dive into the details to see what happened.

I suspect GWRE rallied on the lead that revenue increased 28% over the same quarter last year, and gave back those gains on the next bullet point, which revealed that services revenue drove the outperformance (up 31%, versus 22% for license revenue growth). Quarter-over-quarter license growth was only nominal, so investors are probably concerned that Guidewire license sales are already bumping up towards the top of the S-curve.

Please read my full GWRE earnings wrap here.

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