On Thursday, Goldman Sachs adjusted its outlook on nCino Inc. (NASDAQ:NCNO), a cloud banking software provider, by reducing the stock's price target to $34 from the previous $38. The firm sustained its Neutral rating on the shares.
nCino's first-quarter financial results for fiscal year 2025 revealed revenue that exceeded market expectations, driven by slight outperformance in subscription and professional services. Profitability surpassed forecasts due to lower-than-anticipated sales and marketing (S&M) and general and administrative (G&A) expenses, as hiring fell short of the company's plans for the quarter. The company's performance is a reflection of the stabilizing influence that interest rate stability has on bank IT budgets.
Management highlighted several strong areas, including the US Enterprise market and community and regional markets. Despite the general interest rate stability, the mortgage sector continues to dampen overall growth rates, as higher interest rates persist. Still, nCino has been successful in acquiring 15 new clients in the mortgage space and is increasing its market share.
The analyst noted that while expectations of interest rate cuts continue to be deferred, affecting the mortgage market, the timing for a significant uptick in nCino's business remains indefinite. The company reported that customer churn in the first quarter did not decrease as anticipated but still expects to maintain its $20.5 million churn forecast for the year.
Although the second-quarter estimates appear less risky and there is an anticipated acceleration in the latter half of the year, the ongoing uncertainty in the interest rate and lending demand environment has led Goldman Sachs to maintain a cautious stance. The firm awaits further indicators that would provide greater confidence in fundamental improvements to nCino's growth trajectory before altering its rating.
InvestingPro Insights
The recent performance and market outlook for nCino Inc. (NASDAQ:NCNO) can be further contextualized with the latest InvestingPro data and insights. With a market capitalization of $3.45 billion, nCino is navigating the complexities of the financial software sector.
Despite the challenges, analysts are optimistic about the company's potential for income growth, as indicated by the 10 analysts who have revised their earnings upwards for the upcoming period. This optimism is further supported by projections that the company will be profitable this year, a significant turnaround considering it was not profitable over the last twelve months.
From a valuation standpoint, nCino is trading at a high EBITDA valuation multiple, suggesting that investors have high expectations for the company's future earnings growth. This is underscored by a 16.71% revenue growth in the last twelve months as of Q4 2024 and an EBITDA growth of 125.54% in the same period. Still, the company operates with a moderate level of debt, which may offer some financial flexibility as it seeks to expand its market share and improve profitability.
For investors considering nCino as a potential addition to their portfolio, it is worth noting that the company does not pay a dividend, focusing instead on reinvesting in its growth. To gain deeper insights and access additional InvestingPro Tips, interested readers can visit InvestingPro. Moreover, users can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes many more tips to inform investment decisions.
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