For 2022, shares of P&C insurance software vendor Guidewire Software, Inc. (GWRE, Financial) fell 44.9% and hurt performance by 189 bps. We believe this is due tocontinued multiple compression in high-growth cloud technology stocks. However, the company continues to accelerate its investment in its cloud computing growth opportunity. Guidewire has now crossed the midpoint of its cloud transition, which should correlate to dramatically improving financial results. We believe Guidewire has tripled its addressable market to $20 billion through new products and cloud delivery. We believe the company is the critical software vendor to the global P&C insurance industry, which remains significantly underpenetrated. Guidewire could ultimately capture 30% to 50% of its $15 billion to $25 billion total annual addressable market. If that is the case its margins could exceed 40%. This resultant strong cash flow could be used to continue to invest in new products and services for its customers and buying back stock. It recently instituted a $400 million share repurchase program.
From Ron Baron (Trades, Portfolio)'s Baron Focused Fund fourth-quarter 2022 letter.
