Insurance software provider Guidewire Software (NYSE: GWRE) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 26.5% year on year to $332.6 million. Guidance for next quarter’s revenue was better than expected at $342 million at the midpoint, 1.5% above analysts’ estimates. Its non-GAAP profit of $0.66 per share was 7.5% above analysts’ consensus estimates.

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Company Overview

With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Guidewire Software grew its sales at a 11% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Guidewire Software.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Guidewire Software’s annualized revenue growth of 17.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Guidewire Software reported robust year-on-year revenue growth of 26.5%, and its $332.6 million of revenue topped Wall Street estimates by 4.6%. Company management is currently guiding for a 18.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 14% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

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Annual Recurring Revenue

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Guidewire Software’s ARR punched in at $1.06 billion in Q3, and over the last four quarters, its growth was solid as it averaged 17.7% year-on-year increases. This alternate topline metric grew slower than total sales, which likely means that the recurring portions of the business are growing slower than less predictable, choppier ones such as implementation fees. If this continues, the quality of its revenue base could decline.

Customer Acquisition Efficiency

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Guidewire Software is extremely efficient at acquiring new customers, and its CAC payback period checked in at 16.7 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Guidewire Software more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

Key Takeaways from Guidewire Software’s Q3 Results

It was encouraging to see Guidewire Software beat analysts’ revenue expectations this quarter. We were also glad its revenue guidance for next quarter slightly exceeded Wall Street’s estimates. On the other hand, its billings missed. Zooming out, we think this was a mixed quarter. The stock traded up 4.9% to $226.40 immediately following the results.

So do we think Guidewire Software is an attractive buy at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.