Out Fox The $treet

Summary Demandware reported Q2 '14 earnings. Solid earnings continue to suggest that the stock is a buy in the low $50s. Original research suggested the company would see an acceleration in revenue, making the stock attractive.          Read the full update at Seeking Alpha.  Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Any investor reviewing the financials of NetSuite ( NYSE: N     ) , the cloud-software based Enterprise Resource Planning (ERP) company, would probably derive a stock value below $30 rather quickly. Most investors would be shocked that the stock trades at nearly $110. The company is growing quickly as enterprises move toward cloud offerings, but NetSuite is only marginally profitable and revenue growth is slowing down to a more sustainable 25% long-term growth rate. Why then are investors willing to pay $8 billion for a stock only generating $400 million in revenue? Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Small Cap Insight Over the last couple of years numerous software stocks have gone through the grueling transition to the cloud. In most cases, the stocks have suffered as the company takes a hit from the lower current quarter revenue and higher expenses. A perpetual license that previously went directly to revenue during the quarter of the signed contract now becomes a subscription recorded over two to three years of monthly revenue. One software firm that has been impacted is ClickSoftware ( CKSW ) that provides automated mobile workforce management and optimization solutions for such industries as utilities, telecom, and home security. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Over the last couple of weeks, several cloud software stocks have issued guidance that disappointed the markets. In most cases, the original estimates weren't that aggressive for stocks with relatively high valuations. Not being able to make estimates was beyond disappointing. 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. Read the full article on Seeking Alpha. D...

Considering the 52% premium that SuccessFactors ( SFSF ) received from SAP this weekend, it made us wonder if any other cloud software stocks were worth looking into. Generally the stocks claiming the 'cloud software' tag have lacked the profitability to warrant further research considering the normally lofty valuations. The summer sell-off and continued growth in the sector has made some valuations more compelling, especially considering the SAP offer premium. Remember that SFSF had massive 78% revenue growth in Q3, but the company only managed to report non-GAAP income of $8.6M. Based on $95M in quarterly revenue, that is a decent profit margin. Unfortunately though the company is a big issuer of shares for compensation so that the outstanding shares crept up to 87M from 81.6M. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details.