Why Q2 Holdings Stock Could Be Your Next Big Buy

Key Points

• Q2 Holdings is a leading provider of digital banking solutions for banks and financial institutions.
• Q2 Holding's platform enables its banking clients to offer digital banking features, from transferring funds and originating loans to analytics and fraud detection.
• Q2 provides digital banking solutions for 60% of Forbes America’s Best Banks list.

Digital banking is commonplace nowadays. Mobile banking is an essential offering for banks of all sizes to remain relevant against competitors. It’s normal for customers to check their bank balances, deposit checks, make transfers, and even pay bills on their mobile banking apps. Q2 Holdings Inc. NYSE: QTWO is a leading provider of digital banking solutions for banks and financial institutions. They provide the software to enable banks to offer digital banking for their customers.

Q2 operates in the computer and technology sector, competing with banking software providers, including Fiserv Inc. NYSE: FI, Jack Henry & Associates Inc. NASDAQ: JKHY, nCino Inc. NASDAQ: NCNO and ACI Worldwide Inc. NASDAQ: ACIW.

Q2 Holdings Portfolio of Services

While bank customers may take digital banking services for granted, banks have to handle the behind-the-scenes infrastructure to accommodate customer's needs. Q2 provides the software infrastructure through its cloud-based platform, providing a comprehensive suite of services, which include:

• Consumer Retail Banking: Q2 enables financial institutions to offer online and mobile banking, from opening accounts and digital onboarding to paying bills, transferring funds, making mobile check deposits, and offering financial management tools.
• Small and Medium-Sized Business (SMB) Banking: Q2 also offers SMB banking services, which include online payment processing, loan origination, cash flow analysis, business intelligence, expense management, and payroll.
• Commercial Banking: Q2 Digital Banking has commercial banking features enabling ACT to instant payment rails, fraud detections, analytics, market-specific banking packages, reports, treasury onboarding and services, and integration with accounting systems. Q2 Interactive Test Drive enables commercial banking customers and prospects to try out the banking capabilities in a mock-up simulation of their environment.

Q2 plans to incorporate its generative artificial intelligence (AI) digital assistant, Andi Copilot, into its banking product portfolio and risk and fraud management platform.

Q2 Innovation Studio Enables Banks to Customize Their Digital Banking Offerings

Its Innovation Studio is a suite of tools that enable financial institutions to customize their digital banking offerings to their customers. It helps them rapidly deploy new functionalities and features. It's powered by over 1,000 integrations with the optionality to choose vendors and pre-integrated with over 150 of the best-in-class fintech partners. It offers hundreds of plug-and-play fintech integrations, including chatbots, credit scoring, payments, accounting, human resources, and payroll accounting. Q2 services 60% of the Forbes list of America's Best Banks and 40% of their Best Credit Unions list.  

Solid Results for the Second Quarter of 2024

Q2 Holdings reported a Q2 2024 EPS of 38 cents, beating consensus estimates by 6 cents. Revenues rose 12% YoY to $173 million, beating consensus estimates by $1.9 million. Non-GAAP gross margin improved to 55.7%, up from 54.2% in the year-ago period. Adjusted EBITDA was $30 million, up from $17.6 million in the year-ago period.

Subscription annualized recurring revenue (ARR) grew 19% YoY to $644.9 million. Remaining performance obligations (RPO) or backlog totaled a record $426 million, up $38 million from last year. The company signed four Tier 1 digital banking contracts, a new Tier 1 bank utilizing its relationship pricing and treasuring pricing solutions, and an expansion with an Enterprise bank.

Q2 Holdings CEO Matt Flake commented, "We've had broad sales success for several consecutive quarters, highlighted by a mix of net new and expansion wins across our lines of business. We believe our sustained performance not only demonstrates our competitive differentiation and a strong demand environment but also the resilience of our customers and prospects in the current economic climate."

QTWO Stock Sets Up a Second Potential Bull Flag Pattern

A bull flag forms on the breakout through the upper descending parallel trendline resistance after the flagpole peak.

QTWO triggered a bull flag breakout on the breakout through the $72.38 consensus price target to form another flagpole peaking at $82.72. The flag formed on the parallel descending trendlines, indicating lower highs and lower lows. A breakout through the upper descending trendline can trigger the bull flag. The daily anchored VWAP is at $73.70. The daily relative strength index (RSI) rose to the 62-band. Fibonacci (Fib) pullback support levels are at $74.24, $67.09, $64.07, and $61.42.

Q2 Holdings’ average consensus analyst price target is $72.38, and its highest analyst price target sits at $91.00. It has nine analyst Buy ratings and one Hold rating.

Actionable Options Strategies: QTWO is trading 8% above its consensus price target. Bullish investors can buy on pullbacks using cash-secured puts and write covered calls after being assigned to execute a wheel strategy for income.