On Thursday, Citi maintained its Buy rating on shares of Clearwater Analytics Holdings (NYSE:CWAN) and increased the price target from $28.00 to $33.00, following the company's solid third-quarter results. Clearwater Analytics reported approximately 26% year-over-year growth in Annual Recurring Revenue (ARR), with around 24% being organic growth.
The company's revenue was bolstered by a Net Revenue Retention (NRR) rate of roughly 114%, exceeding the estimate of about 111%.
The improvement in NRR from the previous quarter's approximately 110% was attributed to a 2-point gain from onboarding additional assets and cross-selling products to existing clients, as well as a 2-point increase from higher Asset Under Management (AUM) due to rising asset prices. Moreover, Clearwater delivered better-than-expected Adjusted EBITDA figures.
Despite the positive third-quarter performance and increased NRR, Clearwater's fourth-quarter outlook remains unchanged, which Citi suggests might indicate conservative assumptions with the potential for upside. The firm anticipates continued growth from cross-selling efforts and believes the higher NRR places Clearwater in a strong position to sustain or even accelerate its organic growth in the fiscal year 2025 and beyond.
Another highlight was the potential termination of the Tax Receivable Agreement (TRA), which is seen as a positive move that could enhance Free Cash Flow (FCF) conversion and reduce complexity within the company's financial structure. Citi's outlook on Clearwater is optimistic, noting that the platform is resonating well in the market and presenting numerous opportunities with both new and existing clients.
In other recent news, Clearwater Analytics has demonstrated robust financial performance with a 19% increase in revenue year-over-year for the second quarter of 2024, reaching $106.8 million. This growth has been fueled by the introduction of new products and expansion across North American and international markets.
In response to this, Clearwater Analytics has revised its revenue guidance for the year upwards, following a significant increase in adjusted EBITDA margin to 31.3% and a 116.9% increase in free cash flow from operations, totaling $42.4 million.
Clearwater Analytics has also formed a strategic partnership with Snowflake (NYSE:SNOW), a leader in AI Data Cloud solutions, to enhance data utilization for asset managers and owners. This partnership is expected to provide clients with actionable insights and opportunities to grow their businesses.
In analyst news, JPMorgan upgraded Clearwater Analytics stock from Neutral to Overweight, setting a new price target of $33.00, up from the previous $23.00. This upgrade was prompted by a significant increase in the company's net revenue retention rate and a broad-based demand for its services.
Other firms such as Oppenheimer, and RBC Capital Markets have also raised their price targets for Clearwater Analytics, maintaining positive ratings on the shares.
Other recent developments at Clearwater Analytics include the appointment of Fleur Sohtz as its new Chief Marketing Officer and an investment in generative AI. The company also plans to expand across Europe and APAC, specifically targeting the UK, French, and German markets.
InvestingPro Insights
Clearwater Analytics Holdings (NYSE:CWAN) continues to demonstrate strong financial performance, as evidenced by both the company's Q3 results and recent market data. According to InvestingPro data, CWAN has shown impressive revenue growth of 20.82% over the last twelve months as of Q2 2024, aligning with the robust 26% year-over-year ARR growth reported in Q3. This growth trajectory is further supported by an InvestingPro Tip indicating that net income is expected to grow this year.
The company's stock has also been performing exceptionally well, with a 52.51% price total return over the past year and a significant 61.93% return over the last six months. These figures underscore the market's positive reception of Clearwater's business model and growth strategy. An InvestingPro Tip notes that the stock is trading near its 52-week high, which corroborates the strong investor confidence mentioned in the article.
While the company's valuation metrics, such as the high EBITDA and revenue multiples, suggest a premium valuation, this could be justified by the strong growth prospects and market position outlined in the Citi analysis. Investors seeking more comprehensive insights can access additional 15 InvestingPro Tips for CWAN, providing a deeper understanding of the company's financial health and market position.
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