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Sage makes progress on cloud transition

by LLB Editor
14th May 21 11:03 am

The latest results from accounting software firm Sage may be a little hard to pick through but the conclusion seems to be that the company is heading in roughly the right direction.

Critically there was evidence of at least some of the organic growth in recurring revenue which is front and centre in the company’s strategy.

Historically Sage was a ‘steady-eddy’ business built on a license sales model, where most of the contracted cash came up front with high margin servicing and maintenance income rolling in over the term of the contract.

“In recent times its market has been disrupted by cloud computing as clients look to access applications on any internet-enabled device and this has led to volatility in the share price,” said AJ Bell boss Russ Mould.

“Even if users stick with Sage’s cloud offering, the shift away from licences typically diminishes upfront revenue and cash flow, and requires significant investment.

“This in turn drags down growth rates in the near term even if it produces a typically reliable subscriptions-based income stream over time.

“Plus Sage operates in a competitive marketplace and has plenty of rivals who were ‘born in the cloud’ and therefore don’t face the same painful metamorphosis it does.

“To convince the market it will eventually emerge as a beautiful butterfly of a business, the company needs to show it can improve profitability while continuing to grow its subscription revenue.”

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