Nemetschek's Conservative Earnings Reporting and Strong Free Cash Flow Growth: Why the Market Is Underestimating Its Long-Term Earnings Power and Valuation Potential

The Nemetschek Group has long been a quiet but formidable force in the architecture, engineering, and construction (AEC) software sector. Yet, despite its consistent revenue and profitability growth, the market has treated its earnings reports with a degree of caution, often underestimating the company's long-term earnings power and valuation potential. This disconnect between conservative guidance and robust performance is not a flaw but a feature of Nemetschek's disciplined strategy—a strategy that positions it to outperform in an increasingly digital and AI-driven industry.

Conservative Guidance, Surprising Execution

Nemetschek's Q2 2025 results underscore this dynamic. The company reported 30.5% currency-adjusted revenue growth to €290.0 million, with Annual Recurring Revenue (ARR) surging 38.7% to €1.08 billion. These figures far exceeded its initial full-year guidance of 17–19% growth, prompting an upward revision to 20–22%. The Build segment, bolstered by the GoCanvas acquisition, delivered 63% currency-adjusted revenue growth, while the Design segment's 18.3% growth reflected strong demand for multi-year SaaS contracts.

Critically, the company's EBITDA margin expanded to 30.5% in Q2, up from 27.0% in Q2 2024, despite integration costs from GoCanvas and a non-operational hit from a service provider insolvency. Free cash flow remained stable at €55 million, matching Q2 2024 levels, even as the company scaled its operations. This resilience highlights Nemetschek's ability to balance aggressive growth with operational efficiency—a trait that conservative guidance often masks.

The Free Cash Flow Advantage

Nemetschek's free cash flow generation is a cornerstone of its long-term value proposition. In Q2 2025, the company generated €55 million in free cash flow, a figure that held steady despite the dilutive effects of M&A and macroeconomic headwinds. Over the first half of 2025, consolidated EBITDA reached €169.1 million, with a margin of 29.5%. Adjusting for the insolvency-related impact, the EBITDA margin would have been 31.5%, a significant improvement from 28.7% in H1 2024.

This free cash flow strength is not accidental. Nemetschek's transition to a 92% recurring revenue model—up from 83% in 2024—has created a predictable, scalable cash flow engine. Subscription and SaaS revenue grew 72.5% in Q2 alone, demonstrating the power of sticky, high-margin contracts. Unlike traditional software models, where revenue recognition is lumpy, Nemetschek's recurring streams provide a buffer against volatility, enabling reinvestment in innovation and strategic acquisitions.

Why the Market Is Undervaluing Nemetschek

Despite these fundamentals, Nemetschek's valuation multiples remain elevated relative to peers. The stock trades at a trailing P/E of 78.48 and an EV/EBITDA of 49.09, significantly higher than the sector average of ~30x. Analysts have maintained a price target of €122 per share, but this reflects a cautious consensus rather than a re-rating of the company's intrinsic value.

The disconnect stems from three factors:
1. Conservative Guidance: Nemetschek has historically set low barometers for growth, creating a narrative of caution. However, its Q2 performance—exceeding revenue and EBITDA expectations—suggests the company is self-imposing a ceiling on market expectations.
2. Short-Term Noise: The insolvency incident and GoCanvas integration costs have clouded the narrative, even though the company's free cash flow and EBITDA margins remained resilient.
3. Underappreciated AI and SaaS Synergies: Nemetschek's deployment of agentic AI assistants and its focus on cloud-native solutions are under-recognized catalysts. These innovations position the company to capture market share in AI-driven AEC workflows, a sector poised for rapid growth.

Strategic Catalysts for Long-Term Growth

Nemetschek's long-term earnings power is anchored in its strategic priorities:
- Global Expansion: Revenue from international markets grew over-proportionally in H1 2025, with strong performance in India and Saudi Arabia. This diversification reduces exposure to regional downturns.
- AI Integration: The company's Agentic AI Assistant, now rolling out across its platforms, is expected to boost productivity and unlock new revenue streams in automation and analytics.
- M&A and Innovation: Acquisitions like GoCanvas and Manufacton, alongside investments in startups like Handoff, are expanding Nemetschek's ecosystem. These moves are not just about scale but about creating a platform that integrates design, construction, and management workflows.

Investment Implications

For investors, Nemetschek presents a compelling case of undervalued growth. The company's conservative guidance creates a margin of safety, while its free cash flow and recurring revenue model offer downside protection. The market's current skepticism—reflected in its high valuation multiples—may be a mispricing opportunity, particularly as AI adoption and SaaS penetration accelerate in the AEC sector.

However, risks remain. The integration of GoCanvas could strain margins in the short term, and macroeconomic headwinds could dampen demand for construction software. Yet, given Nemetschek's operational discipline and innovation pipeline, these challenges are manageable.

Conclusion

Nemetschek's conservative earnings reporting has obscured a company that is, in reality, a high-growth, high-margin SaaS leader. Its free cash flow resilience, strategic AI investments, and global expansion efforts are underappreciated drivers of long-term value. For investors willing to look beyond short-term volatility, Nemetschek offers a rare combination of disciplined execution and transformative potential—a stock that may yet see a re-rating as the market catches up to its fundamentals.