Clearwater Analytics: An affordable, best-of-breed SaaS play

January 08, 2024 at 07:00 AM EST

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Clearwater Analytics Holdings Inc. (NASDAQ: CWAN) is a leading investment accounting, reporting and management platform in the business services sector. Asset managers use it, as do insurers, enterprises and government agencies, including Thornburg, DC.gov, Meta Platforms Inc. (NASDAQ: META), Facebook, Fifth Third Bank Inc. (NASDAQ: FITB), Zillow Group Inc. (NASDAQ: Z) and NC State University.

The company handles over $6.4 trillion of client reconciliation and reporting across thousands of accounts, asset classes, currencies and regulatory bodies daily.

Clearwater claims to be the first and only software-as-a-service (SaaS) investment accounting and analytics platform that can transform the investment accounting team into a growth machine. It's rare to find best-of-breed stocks trading under $20 with the markets near all-time highs. While valuations may be high, the cost of Clearwater Analytics stock is affordable at under $20.

Investment accounting and reporting

Clearwater is considered best-of-breed. Investment accounting is not your typical form of bookkeeping and accounting. Asset classes can require different accounting and tax treatments, regulatory requirements and filings. This gets more complicated as more data feeds and different systems are aggregated, especially regarding foreign assets and regulations.

Clearwater automates the entire investment lifecycle on a single platform, combining and reconciling all the data once, enabling all clients to use it and perform analytics, derive data-driven insights, manage risk, and optimize performance. Its open architecture enables its engines to integrate seamlessly with other financial systems and data sources. It employs artificial intelligence (AI) for predictive analytics, anomaly detection and generating proactive information on investments.

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Solid growth and margins

On November 1, 2023, Clearwater released its third-quarter fiscal 2023 results for September 2023. The company reported earnings-per-share (EPS) of nine cents, beating consensus analyst estimates for eight cents by a penny. Non-GAAP gross profit rose to $73.2 million for a 77.4% non-GAAP gross margin, up 250 bps YoY.

Net loss for the quarter was $2.3 million, which included $31.2 million in equity-based compensation and payroll taxes.

Non-GAAP income rose to $23.7 million, up from $13.8 million in the year-ago period. Revenues rose 23.7% YoY to $94.66 million versus $91.95 million analyst estimates. Clearwater ended the quarter with $302.8 million in cash and cash equivalents. Total debt was $48.7 million as of September 30, 2023.

Its annualized recurring revenue (ARR) rose 19.4% to $362.4 million. The gross revenue retention rate was 98%, which it has been for 18 of the 19 prior quarters. The net revenue retention rate was 108%, up from 103% in the year-ago period.

In line guidance

Clearwater reaffirmed Q4 2023 revenues of $98.5 million versus $98.54 million consensus analyst estimates.

Winning clients from competitors

Clearwater Analytics CEO Sandeep Sahai stated that 90% of client onboarding happens within five months instead of several years to implement. Clearwater wins 80% of its proposals for new clients, in large part due to the power of the single instance platform.

He gave an example of a seven-figure insurance company client win in the quarter. The client had outsourced all its investment accounting functions to a competitor. The client was convinced upon seeing an onsite demo of its platform.

Sahai commented, “They realized that it was possible to get a comprehensive daily view of the global portfolio, including public and private assets, which in turn would enable their decision-makers to make better and more informed decisions. That demo led to an accelerated review of the accounting book of record solution, and this insurer selected Clearwater in record time.”

This has been the typical template of client wins and onboarding. On January 3, 2024, DA Davidson appointed Clearwater Analytics to its "Best of Breed Bison List."

Clearwater Analytics analyst ratings and price targets are at MarketBeat. Clearwater Analytics peers and competitor stocks can use the MarketBeat stock screener.

Daily descending triangle pattern

The daily candlestick chart for CWAN illustrates a descending triangle pattern, a falling or descending trendline that commenced at $21.89 on November 29, 2023. Subsequent bounce attempts were met with lower highs. The flat-bottom horizontal trendline formed around $19.01 after testing multiple times.

The daily market structure low (MSL) buy trigger formed at $19.44. The 50-period moving average has been a resistance at $19.68 as it flattens.

The daily relative strength index (RSI) attempts to bounce off the 50-band as shares get closer to the apex point where the descending upper trendline meets the horizontal flat-bottom lower trendline. Pullback support levels are $19.01, $18.55, $18 and $17.65.

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