BlackLine shares came under pressure Monday after D.A. Davidson downgraded the financial software company to Underperform from Neutral and cut its price target to $23 from $30, arguing that advances in artificial intelligence could make it harder for BlackLine to deliver the faster growth investors have been expecting in 2027.
The downgrade does not argue that BlackLine’s core financial-close software is becoming obsolete. Instead, D.A. Davidson is questioning how much incremental revenue BlackLine can capture from its newer AI products as enterprise customers gain access to increasingly capable frontier models, consider building more automation internally and evaluate specialized AI startups. The firm also reduced its 2027 estimates and valued the shares at roughly nine times its forecast for 2027 free cash flow.
BlackLine shares fell as much as 5.8% Monday following the downgrade, extending what has already been a difficult year for the stock. The analyst action puts greater attention on a gap that has emerged between BlackLine’s current growth rate and management’s expectation for a stronger acceleration beginning next year.
AI Is Both BlackLine’s Growth Strategy and a Competitive Risk
BlackLine generated $187.8 million of revenue in the second quarter, up 9.2% from a year earlier, while subscription revenue increased 9%. The company produced $36.5 million of free cash flow, up from $25.4 million a year earlier, and non-GAAP operating margin expanded to 23.3% from 22.1%. Those results show a business that remains profitable and cash-generative even as growth stays below the longer-term level management is targeting.
For 2026, BlackLine continues to expect revenue of $765 million to $769 million, representing growth of roughly 9% to 10% from 2025. Management has previously outlined a medium-term goal of reaching 13% to 16% revenue growth and has said it expects more visible acceleration during 2027, supported by platform pricing, larger enterprise contracts and its Verity AI products.
That acceleration is where D.A. Davidson sees greater uncertainty. As general-purpose AI models become more capable and cheaper to use, companies may have more options for automating finance workflows without purchasing every premium AI feature from an established software vendor. BlackLine could also face competition from newer vertical AI companies and larger enterprise software providers adding similar functionality.
There is evidence, however, that BlackLine’s AI strategy is already gaining commercial traction. Management said roughly 3,500 eligible customers were AI-enabled during the second quarter and about 3,000 were actively using AI in their financial operations. AI feature usage approached 13 million actions during the quarter, more than tripling sequentially, while Verity Prepare had contributed to more than $20 million of platform annual contract value.
That makes the competitive question more complicated than whether customers want BlackLine’s AI. They are clearly using it. The issue is whether BlackLine can turn that usage into enough incremental recurring revenue to lift companywide growth from the high-single-digit range toward the low-to-mid teens while frontier models and competing software products continue improving.
Deal Delays Show the Build-Versus-Buy Debate Is Already Affecting Sales
BlackLine has already seen AI change the sales process. During the second quarter, approximately $8 million of opportunities expected to close before June 30 slipped into later periods as large customers conducted more extensive reviews involving security, compliance, IT and AI governance. Management said those discussions increasingly included formal assessments of whether customers should build capabilities internally or buy them from BlackLine.
The important qualification is that the company did not say those deals disappeared. By the August earnings call, BlackLine had already closed roughly half of the delayed opportunities and was progressing on the remainder. Management characterized the problem primarily as timing rather than lost demand, although delays can still reduce near-term revenue because contracts contribute fewer months of revenue when they close later in the year.
Other forward-looking indicators also remain stronger than headline revenue growth. Remaining performance obligations rose about 17% to more than $1.1 billion in the second quarter, while current RPO — revenue expected to be recognized during the following 12 months — increased 11%. Average new deal size increased 24%, and 56% of the quarter’s renewal business involved multi-year commitments, compared with 45% a year earlier.
At the same time, calculated billings increased only 5.9%, and annual recurring revenue grew about 6%, or roughly 7% excluding currency effects. Dollar-based net revenue retention was 102.4%, about 104% excluding foreign exchange, suggesting existing customers are still expanding their spending but at a relatively modest rate.
Platform Pricing Becomes the Test for 2027
BlackLine is attempting to change those economics by moving customers away from traditional user-based pricing toward platform pricing that allows unlimited users and creates more opportunity to monetize usage and AI capabilities. Platform-priced ARR reached 17% of eligible ARR at the end of the second quarter, up from 13% three months earlier, and management said it remained on track toward a 25% year-end target.
The transition creates a temporary tradeoff. Unlimited-user pricing reduces the incremental revenue BlackLine historically received when customers added seats, leaving platform conversions, product expansion and AI consumption to make up the difference. Management expects platform conversion and agentic AI adoption to add at least two percentage points of growth as adoption scales, supporting its expectation for stronger growth heading into 2027.
D.A. Davidson’s downgrade effectively challenges that assumption rather than BlackLine’s current profitability. The analyst’s $23 target reflects a view that 2027 growth may come in below the trajectory embedded in management’s longer-term plan if customers increasingly use frontier AI models or alternative products instead of paying BlackLine for additional AI functionality.
The next several quarters should provide clearer evidence. BlackLine expects third-quarter revenue of $193 million to $195 million, representing growth of 8.3% to 9.4%, while maintaining its $765 million to $769 million full-year outlook. More important than a single quarter’s revenue figure will be whether platform adoption continues climbing toward 25%, the remaining delayed enterprise deals close, current RPO and billings accelerate, and Verity converts rising usage into recurring revenue. Those indicators will determine whether BlackLine enters 2027 with the growth momentum management expects — or whether the competitive concerns behind Monday’s downgrade begin showing up in the financial results.
