Cloudy Earnings In The Cloud Software Sector
Back a few months ago, this article analyzed the sector after SuccessFactors (SFSF) agreed to be bought out by SAP for a 52% premium. At the time, I highlighted how the stocks had very aggressive valuations for the expected earnings growth. Now, even that potential upside doesn't appear to be coming forth.
So why are these companies struggling to hit earnings estimates if the sector is supposedly booming? Part of the issue is that these companies spend a lot of money to sign contracts where upfront expenses aren't always matched with 1-2 year contracts. The faster the growth in billings, the more difficult it can be to produce earnings in the short term.
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