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On Wednesday, Goldman Sachs reiterated its Buy rating on nCino Inc. (NASDAQ:NCNO) stock with a steady price target of $44.00. The firm's stance comes after nCino reported second-quarter financials for fiscal year 2025, surpassing consensus expectations in both revenue and profitability, driven by a notable subscription revenue beat.
However, the company's stock indicated an after-hours decline of 11%, attributed to a slight deceleration in billings and Remaining Performance Obligations (RPO) growth, as well as guidance for the third quarter that fell below analyst expectations.
Despite the mixed guidance, with the third quarter showing seasonality slightly below Goldman Sachs' forecasts and a reiteration of the full-year guidance, the firm remains positive.
The analyst pointed to a 17% year-over-year increase in net new Annual Contract Value (ACV) bookings and a 36% growth in gross new U.S. ACV bookings for the first half of the fiscal year. These metrics highlight nCino's effective pipeline conversion compared to the previous year and improvements in customer retention.
The analyst emphasized that the perceived weaknesses in nCino's report, such as the billing and RPO growth slowdown and the conservative third-quarter guidance, can be largely explained by changes to the company's revenue model and the quarterly variability in renewals. The firm is encouraged by the company's progress and believes these factors do not detract from the underlying business strength.
Looking ahead, if nCino achieves the mid-point of its revenue guidance, it would exit the year with an approximate 16.4% year-over-year revenue growth. This figure contrasts with the roughly 12.8% growth seen in the first half of fiscal year 2025 and aligns with the 16.0% growth anticipated by consensus for fiscal year 2026.
Goldman Sachs sees potential catalysts for nCino, including easing churn rates, a more favorable mortgage environment, the monetization of new product cycles, and robust market spending, all contributing to the company's positive outlook.
In other recent news, nCino, a cloud banking software provider, posted second quarter earnings that fell short of analyst expectations, triggering a significant stock drop. The company reported adjusted earnings per share of $0.09, missing the consensus estimate of $0.13. However, revenue exceeded expectations slightly at $132.4 million, marking a 13% increase year-over-year.
nCino's third quarter guidance also stirred concern among investors, as the company's revenue forecast of $136-138 million was below the consensus estimate of $138.6 million. The projected adjusted EPS range of $0.15-$0.16 also fell on the lower end of analysts' $0.16 estimate.
Despite these challenges, nCino experienced a 14% year-over-year growth in subscription revenue, reaching $113.9 million. The company reported robust performance in its U.S. business across enterprise and community banking segments.
Pierre Naudé, Chairman and CEO of nCino, expressed a positive outlook for the second half of the year, despite ongoing macro-economic challenges. The company reaffirmed its full fiscal year 2025 revenue guidance of $538.5-544.5 million and concluded the quarter with $126.8 million in cash and equivalents, following a $15 million repayment on its revolving credit facility.
InvestingPro Insights
As Goldman Sachs maintains a bullish outlook on nCino Inc. (NASDAQ:NCNO), it's worth considering additional insights from InvestingPro. With a market capitalization of $3.97 billion, nCino's financial health and growth prospects are key to understanding its potential. The company's revenue growth stands at a healthy 14.77% over the last twelve months as of Q1 2025, indicating a solid trajectory in top-line expansion. Additionally, the EBITDA has seen an impressive growth of 174.94% over the same period, pointing towards an improving operational efficiency.
InvestingPro Tips suggest that while nCino is not profitable over the last twelve months, analysts are optimistic about the company's potential to grow net income this year. This is significant as it could indicate a turning point for nCino's profitability. However, investors should note that the company is trading at a high revenue valuation multiple, which may reflect market expectations for future growth. For those seeking more comprehensive analysis, there are over 8 additional InvestingPro Tips available for nCino at https://www.investing.com/pro/NCNO, including insights on earnings revisions and stock volatility.
These financial metrics and expert tips provide a broader context to Goldman Sachs' positive stance, helping investors to make more informed decisions about nCino's stock.
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