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.
“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.