Re/code: After $66 Billion Goes Poof, Cloud Software Stock Outlook Turns Very Foggy

ATN-300InsightaaS: This post from Re/code has been prominent in social media, and understandably so - most people who are connected with the tech industry are interested in stock valuations, since they affect the business options for private firms, the stock options held by employees of public firms, the investors in both kinds of companies, and the channel members and customers who count on suppliers maintaining business viability.

As the Re/code piece points out, the underlying facts are not nearly so dire as the headline suggests: "cloud software companies as a group are still beating the markets," "software as a subscription is a safer business then selling it the old way," "the cloud companies are still growing faster than the legacy players," and even "after their declines, the cloud companies look cheap." These facts suggest that the sharp decline in SaaS valuations is a temporary blip (or a precursor to a complete collapse of other tech stocks, which seems very unlikely). Where this becomes an industry-wide problem, though, is in the dampening effect that declines in superstar values have on capital availability for emerging companies. The Re/code piece quotes Byron Deeter of Bessemer as saying "The IPO window is closed for the forseeable future," and author Arik Hesseldahl adds, "that means nowhere to go in the also constricting private capital market, which has been enthusiastic for cloud plays thus far."

Canadian cloud businesses have not enjoyed the same "enthusiastic" reception that Hesseldahl has observed in the US, so a more limited pool of available funds may be even harder to absorb on this side of the border. Canadian tech companies looking for private investment will need to be very crisp in their approach to investors, able to demonstrate strong business management and compelling growth prospects. 

Firms looking for more insight are encouraged to tune into the TCBC library, which will be releasing a "Financing Cloud Businesses" report on Thursday February `18.

Hat tip to Anurag Agrawal of Techaisle for highlighting the Re/code post!

Let’s get the bad news out of the way first: On Friday, shares of cloud software companies suffered their worst single-day decline ever, erasing about $28 billion in a matter of hours.

Led by LinkedIn, whose shares fell 43 percent, the flag-bearing names of the cloud software industry as they all posted double digit declines: Salesforce.com fell 13 percent, Workday fell 16 percent, NetSuite fell 14 percent, ServiceNow fell 11 percent and AthenaHealth 13 percent. Atlassian, whose shares debuted in an IPO late last year, fell 16 percent.

And that was just one day. If you include declines begun in late December, publicly held cloud software players have suffered their longest sustained decline in five years. In total, the valuations of 47 publicly traded cloud software outfits tracked by the Bessemer Venture Partners Cloud Index have fallen by $66 billion since a mid-December peak...

Read the entire post at Re/code: http://recode.net/2016/02/06/after-66-billion-goes-poof-cloud-software-stock-outlook-turns-very-foggy/

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