Cloud Momentum vs. Services Slump: Why Manhattan Associates' Turbulence Could Be a Buying Opportunity

Manhattan Associates (NASDAQ: MANH) finds itself at a crossroads. The supply chain software leader delivered Q1 2025 results that highlighted its transformation into a cloud-centric powerhouse, with 21% year-over-year cloud revenue growth and a 25% surge in Remaining Performance Obligations (RPO) to $1.9 billion. Yet these positives were tempered by an 8% decline in services revenue and a Loop Capital downgrade citing macroeconomic risks. The stock's valuation—trading at 10.5x EV/EBITDA versus its 12x historical average—suggests the market is pricing in near-term uncertainty. For investors willing to look past short-term headwinds, this could be a compelling entry point.

### The Cloud Growth Engine
Manhattan's cloud trajectory is undeniable. The $94 million in Q1 cloud revenue (up from $77.6 million in Q1 2024) reflects strong demand for its cloud-based solutions, including the newly launched Enterprise Promise and Fulfill (EPF), which optimizes B2B order fulfillment. The company's partnership with Google Cloud—earning the tech giant's “Business Applications Partner of the Year” for supply chain—underscores its innovation leadership.

The RPO figure is equally telling: $1.9 billion in deferred revenue signals a robust pipeline, with 50% of new cloud bookings coming from net new customers. This diversification reduces reliance on legacy services and positions Manhattan to capitalize on the secular shift to cloud-based supply chain solutions. CEO Eric Clark's emphasis on a “strong start to 2025” isn't hyperbole—the RPO's 25% YoY growth suggests future revenue visibility, with 38% of that total expected to convert within two years.

### The Services Slump and Macro Headwinds
The 8% drop in services revenue to $121 million, however, raises concerns. Management cited customer budget constraints and delayed services work amid lingering macroeconomic uncertainty, particularly around global trade tariffs and FX volatility (which created a $2 million revenue headwind). While services are non-cancelable, their flexibility—often priced on a time-and-materials basis—means near-term growth is vulnerable to spending pullbacks.



Loop Capital's downgrade to “Hold” on April 10—citing risks tied to delayed WMS migrations—adds pressure. The firm's lowered $170 price target reflects skepticism about Manhattan's ability to offset services weakness with cloud growth alone. Yet peers like Oracle and SAP have historically shown that services declines in transitional periods are manageable if cloud momentum holds.

### Valuation: Discounted for a Reason?
Manhattan's valuation now sits below its historical average, trading at 10.5x EV/EBITDA compared to its 12x 10-year average. This discount contrasts with its strong profitability metrics: a 34.7% adjusted operating margin (up 340 bps YoY) and $206 million in cash with zero debt. The stock's 43% decline over six months has created a gap between its fundamentals and price.



Analyst sentiment is mixed but constructive. While Loop's downgrade grabs headlines, consensus remains a “Buy” with a $236 average price target—$63 above current levels. The company's $100 million Q1 buyback underscores confidence in its intrinsic value.

### Risks and the Case for a Bottom
The risks are clear: services revenue could remain depressed longer than expected, macroeconomic headwinds could worsen, and competition from rivals like JDA Software and supply chain startups could intensify. Yet Manhattan's RPO pipeline and product specialization—particularly in B2B logistics—provide a buffer. The 70% win rate in competitive bids and investments in AI-driven tools like Manhattan Active Maven (enhancing email support efficiency) reinforce its competitive edge.

### The Investment Thesis
Manhattan's story is one of transition. The company is shifting from a services-heavy model to a cloud-driven engine, and the Q1 results show progress: cloud now represents ~36% of total revenue, up from ~28% in 2023. While services weakness is a near-term drag, the RPO's 25% growth suggests the cloud flywheel is accelerating.

The Loop downgrade and stock underperformance have created an opportunity. At 10.5x EV/EBITDA—a 12% discount to its historical average—the stock offers asymmetry: cloud momentum could narrow the valuation gap, while services risks are already priced in. A “Buy” rating makes sense for investors with a 12–18 month horizon, especially if the company reaffirms guidance amid stable macro conditions.



Historical performance of this strategy offers further perspective. Over the period from 2020 to 2025, purchasing MANH on earnings announcement dates and holding for 20 days generated a total return of 10.78%, averaging 1.93% annually. While the strategy underperformed the broader market—which rose 109.95%—its resilience through volatility is notable. The maximum drawdown of -27.51% highlights short-term risks, but the stock's low volatility (20.84%) and positive returns over time support the thesis that disciplined investors with a multi-quarter horizon could capitalize on the current valuation discount.

In the end, Manhattan's path to outperformance hinges on executing its cloud strategy while navigating the services slowdown. For now, the turbulence appears overdone—a setup for investors to buy the dip.