Monday, February 8, 2016

What LinkedIn Hath Wrought: "After $66 Billion Goes Poof, Cloud Software Stock Outlook Turns Very Foggy"

SalesForce is down another 2.6% in late pre-market but still up 14-fold from the 2004 IPO. LNKD is off 1.6%.
Update: 10 minutes into the trading day First Trust ISE Cloud Computing ETF (SKYY) is down 2.6% and back to May 2014 prices. LNKD has reversed and is now up 3.75% despite the broader market being down down 1.4-2.5%.

From re/code:

After $66 Billion Goes Poof, Cloud Software Stock Outlook Turns Very Foggy
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: 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 began 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. 
So does that mean that great revolution the cloud companies led to change how businesses buy and use software is over? 
Hardly, said Byron Deeter, a Bessemer partner and the creator of its cloud index. Believe it or not, he says there’s good news to be found amid the carnage.
His argument: 
First, cloud software companies as a group are still beating the markets: They’re up 97 percent from the start of 2011 versus 49 percent for the S&P 500 and 64 percent for the Nasdaq over the same period. (See the chart below; click to make it bigger.)
“On the fear-to-greed spectrum, I think this is an extreme move toward fear,” Deeter said. “The fear appears to be that IT spending budgets at large companies are being cut that this will trigger a meaningful pullback cycle for the industry. I don’t think that’s true.” 
Second, after their declines, the cloud companies look cheap. As a group, they’re trading at about four times forward revenue, versus their legacy software competitors like Oracle, SAP and Microsoft which until recently have been trading about 3.5 times forward revenue....MORE