Blackbaud's Guidance Reset Sends Analysts To Sidelines

Software provider Blackbaud, Inc. BLKB made a negative pre-announcement Monday after the close, lowering its non-GAAP revenue, operating margin, EPS as well as free cash flow guidance for 2018.

The Analysts

Stifel analyst Tom Roderick downgraded shares of Blackbaud from Buy to Hold and lowered the price target from $120 to $88.

Raymond James analyst Brian Peterson downgraded Blackbaud from Outperform to Market Perform.

Stifel: Lower Guidance Puts Stock In Holding Pattern 

The shortfall in Blackbaud's subscription revenue is surprising given the company's Q2 commentary that highlighted record bookings, Stifel's Roderick said in a Monday note.

This is notwithstanding ongoing challenges that are already known, such as top-line pressures due to the services business transitioning toward partners and weakness in U.K.-related payments.

The downward guidance adjustment is due to a reduction in one-time services related to the model transition to cloud; a reduction in transactional and payments-related revenue; and reduced expectations for subscription-based recurring revenue, the analyst said. 

"However, model transitions can also mask fundamental challenges, and when those do emerge, it likely takes several quarters to turn the ship back in a more positive direction," Roderick said.

The investments required to execute on faith-based, education and health care initiatives are likely to depress earnings in 2019, the analyst said. 

The guidance reset is likely to keep the stock in a new, lower holding pattern for two to three quarters, according to Stifel. 

No Near-Term Upside In Raymond James' Forecast

A combination of slowing services and payments revenue, recent changes to sales compensation plans and accelerated sales hiring efforts will ding Blackbaud's subscription growth and margin trends in the next several quarters, Raymond James' Peterson said in a Tuesday downgrade note. 

The analyst said he remains positive on Blackbaud's ability to monetize its dominant position in the $8-billion nonprofit software market.

"While shares could still offer attractive returns to more patient investors willing to invest on this reset, we don't believe we'll see a material move to the upside in the near-term." 

The Price Action

Blackbaud shares were falling 11.52 percent to $79.64 at the time of publication Tuesday. 

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