“It’s a bubble, just like 2000,” says Fred Hickey, editor of the High-Tech Strategist newsletter. WDAY,
NOW, OKTA, and ZS are over-valued. So what? Bubbles can last for years!
Software spending isn’t immune to economic cycles; if there is a slowdown or a recession, the stocks could take a major hit.
If? If continue to boom, new ATHs after ATHs?
If investors begin to focus on earnings based on Generally Accepted Accounting Principles, which properly reflect stock compensation as an expense, valuations could fall.
This is a real risk.
Workday’s non-GAAP earnings last year of $1.36 a share turned into a loss of $1.93 based on GAAP numbers, largely because of stock compensation.
Is opposite to hiding profits through acquiring assets. Showing profit where there is none.
Cloud-based software has many advantages. It’s cheaper than the old packaged products that required complex installation and maintenance, allowing smaller businesses to benefit from services once affordable only for corporations.
Clouds are for small and medium businesses only? Can’t scale? Cloud experts please comment
The sector has a bright future, but the stocks have little margin for error. Warns Hickey: “Software is really risky for investors. The risks are not reflected in the stocks.”
The whole “if there a recession” line could be said about the vast majority of stocks. How many companies grow faster in a recession? It negatively impacts almost everyone. The idea those companies would go out of business in a recession is insane.
Cloud stocks will continue to eat at what was SAP and Oracle revenue. The downside is the heavy sales expense. Clearly, most of them haven’t figured out a very scalable way to operate their sales team. That’s going to hold back profitability.
It’s why Facebook is the juggernaut that yelp will never be. Facebook let’s people buy ads online through a user-friendly GUI. Yelp telemarkets people and even if you want to buy ads you have talk to a sales rep. That’s costly and not scalable enough. Most of these cloud companies are using the yelp sales model. A Facebook model would be a game changer. Too many people think that without a person to person conversation a sale won’t happen.
How to use a software is complicated. Are there enterprise grade software that are so intuitive that even idiots know how to use? Ads are designed by the ads buying businesses, they pay FB for the placement.
Most are easy to use. I’m sure configuration and integration with existing systems sucks. It’s probably like trying to update drivers in windows 95 vs a modern computer. Now everything auto detects and setup is automatic. That’s still not a sales issue though. It’s a customer success team problem. Those teams aren’t very scalable either.
Is opposite to hiding profits through acquiring assets. Showing profit where there is none.
