Paylocity Earnings: Client Wins and Interest Income Upside Offset Soft Employment; Shares Attractive

We maintain our $215 fair value estimate for Paylocity following a reasonable start to fiscal 2024. We believe payroll and human capital management firms have been unfairly hammered in recent days over concerns that automation will materially hinder industry growth as fewer payroll errors cannibalize nonrecurring revenue for payroll corrections. Paylocity allayed investor fears by confirming that revenue is derived from bundled per employee per month subscription fees, rather than from a legacy fee per payroll model. In this context, we believe investors have an attractive opportunity to gain exposure to this narrow-moat firm, which is trading at a sizable discount to our fair value estimate.