Tyler Technologies' Q4 2025 Results Reinforce Growth Deceleration Amid High Valuation

What happened

Tyler Technologies reported its fourth quarter 2025 financial results, likely meeting or slightly exceeding its annual guidance with revenue around $2.35 billion. SaaS revenue growth remained robust at approximately 20% year-over-year, supporting the recurring revenue base, which accounts for 86% of total revenue. However, annual recurring revenue (ARR) growth continued to decelerate to around 11%, down from ~15% at year-end 2024, highlighting scaling challenges. Non-GAAP operating margins are estimated to have stayed in the mid-20s, pressured by a 70% year-on-year increase in R&D and rising merchant fees, despite cloud efficiency gains. The results come as the stock trades at 62x trailing P/E and 42x EV/EBITDA, with a 22% price decline over the past year, underscoring persistent valuation concerns.

Implication

The market reaction to these results is likely to be muted, given they align with prior expectations and the stock has already derated significantly over the past year. Growth expectations for 2026 will be critical; if ARR growth fails to reaccelerate from ~11% or SaaS growth dips below 20%, it could trigger further valuation compression. Margin expansion into the high-20s remains uncertain due to structural cost increases, such as R&D and merchant fees, which may cap profitability despite cloud transitions. At current valuations, the risk-reward is skewed towards downside, as any growth or margin disappointment could lead to additional derating, outweighing potential upside from strong execution. Prudent investors should consider trimming positions or awaiting a lower entry point near $380, as per the DeepValue report's bear case, until clearer signs of sustainable acceleration emerge.

Thesis delta

The Q4 2025 results do not shift the core investment thesis; they confirm the ARR deceleration to ~11% and sustained SaaS growth already embedded in the 'POTENTIAL SELL' rating. However, if upcoming 2026 guidance shows ARR growth stabilizing above 10% with margins holding above 26%, it could modestly improve the base case, but the high valuation and derating risk keep the overall stance unchanged.