Shares of P&C insurance software vendor Guidewire (GWRE, Financial) fell 25.0% and hurt performance by 99 bps. We believe this is due to continued multiple compression in high-growth cloud technology stocks. However, the company continues to accelerate the investment it is making in its cloud computing growth opportunity. Guidewire has now crossed the midpoint of its cloud transition, which should correspond with dramatically improving financial results. We believe Guidewire has tripled its addressable market through new products and cloud delivery. We think the company should be the critical software vendor for the global P&C insurance industry. Guidewire could ultimately capture between 30% and 50% of its $15 billion to $30 billion total annual addressable market and generate margins above 40%. This resultant strong cash flow could be used to continue to invest in new products and services for its customers.
From Ron Baron (Trades, Portfolio)'s Baron Focused Growth Fund second-quarter 2022 letter.
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