TYL: Cloud Solutions Expansion Will Drive Continued Outperformance Into 2026

Key Takeaways

• Strong demand for cloud-based, secure, and integrated solutions is driving recurring revenue, market leadership, and higher contract values amid digital transformation and regulatory tailwinds.
  
• Strategic acquisitions, unified client experience, and AI-powered offerings are boosting customer penetration, premium pricing, and scalable margin improvements across Tyler's expanding addressable market.
  
• Heavy reliance on government spending, unpredictable deal cycles, segment declines, acquisition risks, and intensifying competition all threaten Tyler's growth, margins, and long-term earnings stability.

Catalysts

Provides integrated software and technology management solutions for the public sector.

• The accelerating digital transformation initiatives across state and local governments are intensifying demand for cloud-based, integrated solutions, which directly support Tyler's ongoing success in SaaS client migrations (cloud flips) and recurring revenue growth; this secular momentum is reflected in a pipeline of large deals and an expected 25% annual increase in cloud flips, translating to sustained double-digit top-line revenue expansion.
  
• Increased cybersecurity and regulatory requirements, including new standards (e.g., NERIS for emergency services), are compelling agencies to modernize legacy systems, positioning Tyler's secure, compliant cloud offerings as a preferred choice and solidifying its market leadership, which supports higher average contract values and customer retention-positively impacting long-term recurring revenue and margin improvement.
  
• Tyler's strategic expansion of integrated product suites through acquisitions (such as Emergency Networking) and coordinated cross-sell/upsell initiatives, amplified by the One Tyler unified client experience, are increasing both contract size and product penetration per customer, which is expected to boost average revenue per account and drive robust top-line and earnings growth.
  
• Ongoing investment in AI-powered tools and automation-evident in product launches like the AI-driven Resident Assistant and enhanced budgeting solutions-caters to public sector labor challenges and the need for data-driven decision-making, enabling premium pricing, reducing customer churn, and unlocking scalable margin improvements over time.
  
• The increasing push for remote work and self-service government services is accelerating SaaS and transaction-based adoption, broadening Tyler's total addressable market and fueling strong payment volumes and high-margin transaction revenues, as evidenced by outperformance in this segment and expectations for sustained double-digit transaction revenue growth-benefiting both revenue predictability and net margin expansion.

Tyler Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tyler Technologies's revenue will grow by 9.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.7% today to 16.3% in 3 years time.
• Analysts expect earnings to reach $480.4 million (and earnings per share of $10.81) by about September 2028, up from $306.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $370.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 79.3x on those 2028 earnings, up from 78.7x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
• Analysts expect the number of shares outstanding to grow by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Tyler Technologies Future Earnings Per Share Growth

Risks

• Tyler Technologies' business remains highly dependent on government budgets, and any long-term stagnation or cuts in state, local, or federal spending-especially if driven by macroeconomic slowdowns or shifting priorities-could slow new contracts and delay procurement cycles, potentially impacting revenue growth and creating sustained earnings volatility.
  
• The company notes pronounced lumpiness and unpredictability in large deal bookings and cloud migrations (flips), which, if persistent as their customer base shifts to larger governments and more complex implementations, could result in lower year-to-year revenue visibility and pressure on net margins due to increased implementation and support costs.
  
• The professional services and traditional maintenance/license segments are experiencing ongoing revenue declines (guided to continue), and if recurring SaaS and transaction revenue growth slows (from full client penetration or competitive pressure), the company's overall revenue base could shrink or stagnate, hurting earnings and margins over time.
  
• Expanding via acquisitions (e.g., Emergency Networking) introduces meaningful integration risks; failure to successfully scale new tuck-in products or meet compliance standards (such as NERIS for emergency services) may lead to missed cross-sell/upsell targets and margin dilution if synergies are not realized as anticipated, negatively impacting long-term net margins.
  
• Competitive threats from emerging GovTech startups (with innovative, cloud-native, or open-source solutions) and increasing demand by public agencies for open, interoperable, or best-of-breed ecosystems raise the risk that Tyler's integrated suite becomes less differentiated; this may force Tyler to increase R&D and discounting, eroding pricing power and pressuring future revenue and profitability.

Valuation

• The analysts have a consensus price target of $678.778 for Tyler Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $800.0, and the most bearish reporting a price target of just $585.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.9 billion, earnings will come to $480.4 million, and it would be trading on a PE ratio of 79.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of $558.41, the analyst price target of $678.78 is 17.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.