Tyler All-In on Cloud Transition; Q4 Results Are In Line; Fair Value Estimate Down to $530

After a generally solid and in line quarter coupled with a formal pivot to the cloud, we are lowering our fair value estimate for wide-moat Tyler to $530 per share from $575 but continue to view shares as attractive. We expect the company's full embrace of the cloud will be a drag on profitability over the next several years, although we do not anticipate much of an impact from this move over the longer term. The company has been organically shifting to the cloud for two decades so at least investors will get to skip the most painful first couple of years in a model transition. Further, we expect margins to bottom in 2023, with revenue growth not really impacted given that most new business is coming in via subscriptions already. Finally, we note the cloud transition adds some uncertainty around results for the next several quarters until investors are more comfortable with progress, notably on optimizing solutions for the cloud and moving clients from Tyler's data centers to AWS.