Insurance software provider Guidewire Software (NYSE: GWRE) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 22.3% year on year to $356.6 million. On top of that, next quarter’s revenue guidance ($318 million at the midpoint) was surprisingly good and 5.3% above what analysts were expecting. Its non-GAAP profit of $0.84 per share was 33.3% above analysts’ consensus estimates.

Is now the time to buy Guidewire Software? Find out by accessing our full research report, it’s free.

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

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Guidewire Software grew its sales at a 14% annual 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.

This quarter, Guidewire Software reported robust year-on-year revenue growth of 22.3%, and its $356.6 million of revenue topped Wall Street estimates by 5.8%. Company management is currently guiding for a 21% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.3% over the next 12 months, a slight deceleration versus the last three years. Still, this projection is above the sector average and implies the market sees some success for its newer products and services.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

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 $1.03 billion in Q2, and over the last four quarters, its growth was solid as it averaged 15.6% 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 17.6 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 Q2 Results

We were glad the company's revenue and operating outperformed Wall Street’s estimates convincingly. It was also great to see Guidewire Software’s revenue guidance for next quarter top analysts’ expectations. On the other hand, its billings missed, but the market seems to be willing to forgive this. Overall, this print featured some key positives. The stock traded up 14.2% to $248 immediately after reporting.

Guidewire Software put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. 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.