Tyler Technologies TYL shares have gained 38.5% year to date, outperforming the Zacks Business - Software Services industry, Zacks Computer and Technology Sector and S&P 500 index’s return of 27.2%, 33.3% and 26.3%, respectively. TYL’s outperformance can be attributed to its robust financials that the company has built on the back of steady customer wins.
Tyler’s Strong Business Performance
All through 2024, Tyler gained numerous clients from the government, healthcare, legal and education end markets. These contracts have resulted in Tyler’s recurring revenues and total revenue growth rate, remaining in high single digits in the first three quarters of 2024. TYL’s SaaS revenues grew at a rate of more than 20% in the first three quarters of 2024. In the third quarter of 2024, Tyler reported that the strength in its top line is due to healthy budgets and modernization initiatives in the public sector.
The public sector market in which Tyler operates is one of the largest in the United States, spanning approximately 3,000 counties, various public departments across 36,000 towns and cities, and over a thousand dozen schools across the country. The public sector’s ongoing transition from on-premise and outdated systems to scalable cloud-based systems gives Tyler ample scope to grow.
Tyler has shown a remarkable financial performance over the past several quarters. In the last reported financial results for the third quarter of 2024, revenues increased 9.8% year over year to $543.3 million.
The Zacks Consensus Estimate for 2024 revenues is pegged at $2.14 billion, suggesting a year-over-year increase of 9.5%. The Zacks Consensus Estimate for 2024 earnings is pegged at $9.53, indicating 23% year-over-year growth.
Tyler Price Performance Chart
Image Source: Zacks Investment Research
Tyler Faces Economic and Competitive Challenges
Although Tyler is gaining clients on the back of its robust product portfolio and innovations, it faces tough competition from companies like Oracle ORCL, Workday WDAY and SAP SAP across various product segments. These larger companies have greater resources and marketing capability at their disposal that they can use to give strong competition against Tyler.
Oracle provides Public Sector Cloud, PeopleSoft ERP solution and JD Edwards. Workday's Human Capital Management, Enterprise Accounting and Finance and Adaptive Planning solutions compete with Tyler’s solutions. SAP provides comparable products like S/4HANA, SuccessFactors, Ariba, Analytics Cloud and Integrated Business Planning.
Tyler’s near-term growth prospect is also likely to be negatively impacted by delays in procurement processes and lengthening sales cycles amid ongoing macroeconomic uncertainties. Additionally, many of its customers are expected to face budget pressures in the near term due to a probable slowdown concern.
Conclusion: Hold Tyler for Now
Tyler’s financials are improving on the back of its partnerships and expanding client base. However, TYL faces challenges, including rising competition and macroeconomic uncertainties, which could hurt its near-term prospects.
Considering all these factors, investors should retain this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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