HONEY, what if you made some PROFIT? .... When would Investors ask #Cloud leaders, the aging startups to make profits?
2 distinct #Clouds are visible on the Tech
Horizon these days.
1. One is our fav ‘As a Service’ #Cloud of a various types offered by the (aging?) #CloudComputing
leaders, which is used by regular business and consumers.
2. The other #Cloud is used only by Investors and refers to how they compute returns
from Cloud Companies – let us calls it #ReturnsCompute Cloud. Stay focused on it.
The Investor dream
How do Investors generate
returns? Some of our #Cloud leaders, despite being in their teens,
neither make profit nor declare dividends. So where does that leave Investors?
Enter the
#ReturnsCompute Cloud, used by Investors.
#ReturnsCompute Cloud, is a dream that most Investors live with. The dream
covers topics like Stock Price and its movement. Returns are computed by
estimating the cumulative stockholder return on common stock over a period of
time. By extension, one can compare this return with the cumulative return of
the S&P 500 Index on an investment of $100 over the same time period, along
with re-investment of profits / dividends. However, profits &
dividends are rare in our Cloud World.
Am I generating returns based
on Stock price growth?
That is the primary question, and
some may go beyond. If one goes beyond, there might be a couple of
follow up Questions. How long is long enough for
Investors to stay content with and live off Stock Price growth? When
would Investors start demanding Real Profits from the Cloud Companies?
To choose Growth over Profit is
an old practice, as old as business itself. Long term Investors however, used to have a timeframe or a threshold size
in mind – a point in time beyond which, not making profit wasn’t considered
cool. So, how are the investors in today’s #Cloud
companies different? While Investors don’t seek to develop
Profit making habits, some of the Cloud companies could be spending more money
on sales and marketing chasing growth than on innovation and product development.
This could hurt them in the long run.
Why Profits? Why hurry? 5 to 10
years is too short. Give them more time.
There is a lot of content on the web
arguing both ‘for and against’ demanding profits and dividends from the #Cloud
Companies.
Most analysts produce content that
asks one to “Let the Situation Be.” They tell us to visualize how
today’s Cloud Companies are building products for future, and creating
value. They confirm that we are better off making money from the stock
price movement of today’s Cloud Companies. Mind you there could be companies
that may even report faster growth in stock price than in revenue. These analysts encourage us to forget the bubbles of the past. It feels
good to imagine, this trend is for real.
Here is a list of some of my
fav companies. I admire them for being trend setters and creating new
markets.
WORKDAY
|
2012
|
2013
|
2014
|
2015
|
2016
|
Revenue ($ Billion)
|
0.1344
|
0.274
|
0.469
|
0.788
|
1.162
|
Net Loss ($ Billion)
|
-0.079
|
-0.119
|
-0.173
|
-0.246
|
-0.289
|
Workday doesn’t double revenues every
year anymore. It also doesn’t anymore threaten to dethrone Oracle and SAP
from HCM market space. But it is still reporting impressive revenue
growth rates of 35%+ and might continue to do so into 2020. Without ever thinking
of dividend, $100 invested in Class A common stock of Workday in Y2012 could be
worth $129.4 in 2016.
Salesforce
|
2012
|
2013
|
2014
|
2015
|
2016
|
Revenue ($ Billion)
|
2.266
|
3.050
|
4.071
|
5.373
|
6.667
|
Net Loss ($ Billion)
|
-0.0115
|
-0.270
|
-0.232
|
-0.262
|
-0.047
|
Salesforce is slowing down with its
core Sales Cloud business, but still manages above 30% growth rates with other
offerings. It would probably set history as the first SaaS company
hitting $ 10 Billion run rate before 2020. Without ever thinking of dividend,
$100 invested in Salesforce stock in Y2011 could be worth $211 in 2016.
NetSuite
|
2012
|
2013
|
2014
|
2015
|
Revenue ($ Billion)
|
0.309
|
0.415
|
0.556
|
0.741
|
Net Loss ($ Billion)
|
-0.035
|
-0.060
|
-0.100
|
-0.124
|
NetSuite is maintaining 30%+ growth
rates and looks poised to repeat the performance for a few more years. It is
working hard on markets outside US and positioning itself as ‘the most optimal
Cloud Enterprise App alternative’ to Oracle and SAP in the world of medium
sized businesses. Without ever thinking of dividend, $100 invested in
Netsuite stock in Y2010 could be worth $338 in 2015.
As an admirer, I also worry
about their profit making habits. The profit numbers graphic
doesn't look pretty.
Time to learn from the past
bubbles?
I am worried that my fav aging, non-profit
making and market share chasing companies might be hit by more young and nimble
competition. Market forces after all. There
are other Investors buying into the virtues of #ReturnsCompute Cloud and pumping money building up other market share chasing
companies. And, when growth levels dip into
teens for the established players, the #ReturnsCompute Cloud might burst. Time to learn from the past bubbles?
Note: I am not discussing
Cloud business of or investments by biggies like Microsoft, Oracle, SAP, Amazon
and Google. They don’t publish separate results for Cloud. I would prefer
to assume they do make enough Profits elsewhere to invest and chase market
share for Cloud products.
