[ad_1]
After a strong surge of three years, the software industry is entering a new period of uncertainty. But for companies that seem to be able to stay the course, the enthusiasm of Wall Street has not weakened.
Shares of Salesforce, the leading player in software as a service, grew more than 6% on Thursday, after a quarterly earnings report that dispelled recent concerns about slower growth. At the same time, Intuit, the publisher of software specializing in taxes and small businesses, whose stock market value has nearly tripled over the last four years, to reach $ 71 billion, is planning a new year of strong growth, raising its shares by 5%.
On the same day, however, the shares of VMware, an information center software publisher, lost more than 5%, reducing their key licensing revenue forecast for the rest of the year and unveiling the two largest acquisitions in its history, for a combined amount of $ 4.8 billion. . In the meantime, the data analysis company Splunk, which announced a profit the day before, lost 8% on disappointing cash forecasts.
The divergence points to a growing divide between the fortunes expected of major software companies, while Wall Street is looking for the best people to overcome what many fear is a general slowdown in IT while large customers reduce their spending.
Sector valuations seem very tense after the long rebound, recent slippages have been severely punished. Shares in Zoom – the videoconferencing company that debuted on Wall Street earlier this year – are now changing hands nearly 50 times the expected revenue this year, which is symptomatic of the dizzying expectations of many new cloud players .
The software industry has just gone through a "unique infrastructure cycle once in 20 years," said Brad Zelnick, a software analyst at Credit Suisse in New York. This increase was limited by an increase in sales over the past 12 months, he added, motivated by a number of factors, including a tax cut in the United States, the move to flat "cloud-hybrid" forms that have led many companies to reorganize their core IT infrastructure. combine their existing facilities with new cloud services, and a new urgency to accelerate their "digital transformation" to make their business more agile.
After this growth spurt, comparisons from one year to the next start to be difficult. According to Zelnick, infrastructure software vendors such as VMware are losing ground against cloud computing services considered essential to repositioning businesses in the digital age. With Adobe, Salesforce is "one of the first two cars in the digital transformation freight train," he said.
Uncertainty to come
Two things complicate the situation as the software industry faces more uncertain times. One is the business model changes that the industry has experienced as it adapts to a new reality in which cloud-based subscription services account for a larger share of sales.
Splunk, for example, said its disappointing cash flow forecast reflected a shift to a new billing method that would delay payments in future periods. At the same time, VMware has blamed the disappointing licensing revenue forecast for the remainder of the year for an acceleration of subscriptions to part of its business, which also results in the deferral of additional revenue in future periods.
However, inevitably, Wall Street has chosen to see the disappointing forecasts as a sign of the dark economic clouds that are beginning to form. Pat Gelsinger, President and CEO of VMware, said, "There is uncertainty and no one is immune from this."
The second factor that complicates the situation is the rise in the number of mergers and acquisitions, with software companies seeking new growth prospects. This week, VMware – majority owned by Dell – announced two purchases for a total of $ 4.8 billion – Carbon Black security company, for $ 2.1 billion, and developer of Pivotal cloud tools, majority owned by Dell for $ 2.7 billion.
According to Gelsinger, the agreements reflect a shift to the "hybrid cloud". However, VMware's purchases aroused mixed reactions from Wall Street analysts, who were wondering why it had acquired the minority in Pivotal when Dell was already controlling the company and whether Carbon Black was too small a company to do so. VMware a real player in the security market.
"Organic growth is starting to slow down and they are starting to look to acquisitions," said Daniel Elman, an analyst at Nucleus Research. The growth of Salesforce's original sales software slumped to 13% this quarter, compared with the 22% growth of its new customer service business. "They have dominated the market for a long time and it is starting to be exploited," added Elman.
"We see a buying environment"
The acquisitions also weighed on Salesforce's profit margins, contributing to Wall Street's lingering malaise about the company's inability to further increase margins as its business expands. However, by announcing its latest quarterly figures this week, Salesforce has forecast a further increase in profit margins for its "organic" or existing businesses in the coming months as it intensifies its acquisitions.
"We are compromising between our organic growth and our margin," said Mark Hawkins, chief financial officer of the company. "We have made significant progress over the years, but we know there is still a lot of work to be done."
Wall Street's optimism about Salesforce, as well as other software companies that continue to trade near all-time highs, is the belief that they will experience a tougher economic time than most other industries of the technology industry. Salesforce, for example, recorded 30% revenue growth in Europe this quarter and has appointed a new contract with a bank in Italy as proof that demand for its software can withstand political upheaval.
"No matter what happens in the world, we're seeing a buying environment, we're seeing CEOs investing," said Keith Block, Salesforce's Chief Operating Officer. "The digital transformation is at the heart of our concerns."
The question now is whether this type of spending will continue to hold in the slowing economy – and how many other software companies will be resilient when IT spending in the broadest sense crumbles.
[ad_2]
Source link