I was scanning the news media over the weekend and came across a really interesting article from John Shinal on USA Today – Bye-Bye Internet Bubble 2.0. It was occasioned by the massive 44% drop in LinkedIn shares. See my post - LinkedIn plunges again.
Even so, Shinal made the point that LinkedIn was one of the very few internet stocks which was still above its IPO price. ‘By sharp contrast Alibaba, Twitter, Groupon, Zynga, Match.com, Box, HortonWorks, FitBit, GoPro and Square are all below their IPO price’. Even Facebook had fallen 50% in the first 6 months after their IPO – but had recovered well since. ‘Leaving LinkedIn as the only share never (so far) to have traded below its IPO price of $45.’
HotViews readers should hardly be surprised. We have warned of this on so many occasions. We are unapologetic in liking companies that make profits, generate cash and have high recurring revenue streams. If they can couple that with high growth rates, we love them even more. Facebook, Google, Apple have all proved they can achieve that and shareholders have been richly rewarded as a result.
We have long been sceptical about many of the loss-making SaaS providers. On Friday Salesforce.com lost 12% making a c25% loss in the first 5 weeks of 2016. Workday was off 16%. Looks like investors too are now looking for those profitable, cash-generative compnaies that we love so much. If they could prove they could be both profitable AND still continue their high growth, we would accord them every accolade too.
The ’problem’ at the moment is that investors have ploughed funds into many companies on the basis of growth without profits. Most of those valuations are unsustainable - as we saw on Friday. When private valuations are higher than public valuations you just know that something is seriously wrong. But what we fear – and, for goodness sake, have also been concerned about for yonks – is that the Bursting of Bubble 2.0 would also affect valuations of the sound profit-making stocks that we love. It happened last time (in 2000-2003). Please let’s not let it happen again. The profit-making companies in our sector are, by and large, ‘fairly’ priced at the moment.
Posted by Richard Holway at '14:53'
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Ordinarily a £1.6m contract win for Northgate Public Services (NPS) to provide Blackburn with Darwen Council revenues and benefits software would be business as normal. However the announcement shows how the local government SITS market is evolving.
The council has a 15 year contract with Capita, worth £200m, that is due to end in June this year. Like many others (see here and here), the council decided last year to insource the services covered in the contract (including revenues and benefits, parking, design and print services as well as accounts). Payroll and personnel services were taken back in-house in July 2012.
The staff delivering the revenues and benefit service will return to the council from April 2016 and the plan was for the associated software and systems to return at the end of June. But ‘following information from the market’, the council decided that a cloud based revenues and benefits and document management system would deliver better value.
Despite the political desire to return services in-house local authorities need to pragmatic; especially given the complexity and importance of the revenues and benefits service. The contract demonstrates that councils can change their minds and that SITS suppliers should continue to engage with councils who announce that they will insource services.
SITS suppliers need to adapt to a market place where former BPO contracts are smaller and constructed differently (see UK Local Government SITS Supplier Landscape 2015-16). Local government specialists, such as NPS, will continue to prosper but will need to clearly articulate the value they deliver to win over sceptics.
Posted by Michael Larner at '09:42'
Offshore-centric business process services (BPS) provider Genpact has returned to double-digit constant currency (ccy) growth in FY15 (see here) vs. 6.7% in FY14, after a successful year driven by new digital transformation and BPO initiatives.
Revenue grew 10% in constant currency (ccy) in both Q4 (to $646.5m) and FY15 (to $2.46bn). Adjusted operating margins meanwhile dipped 50 bps in Q4 to 14.8%, and were flat in the full year at 15% (see Genpact building out ‘Lean Digital’ strategy).
Genpact’s largest division BPO is driving the growth, with yoy revenue up 11% to $1.93bn. The smaller IT services division, is however under pressure, with revenues down 3%. Genpact’s other ‘negative’ is former parent GE, whose own disposal programme is going to impact Genpact’s revenue more significantly in 2016.
Fortunately, it looks like strong growth in digital transformation and Intelligent Automation initiatives are going to keep the BPO numbers heading in the right direction. In the call with analysts, president and CEO N.V. "Tiger" Tyagarajan explained that Genpact had entered into eight strategic partnerships to embed technologies such as cognitive intelligence, machine learning and robotic automation into our solutions.
Two examples cited were global deals for Carlsberg and Mondelez International, where Genpact is transforming core back office functions via Lean Digital consulting, and automation and analytics to create new shared service centres of excellence. Genpact innovation is around its systems of engagement (SoE) platforms, where it is building out a portfolio of own its IP and partner products, with a number of UK innovators like LBB OmPrompt (see here), Rosslyn Analytics (see here) and most recently Arria NLG (see here).
Genpact's approach ties with our view on Intelligent Automation becoming a critical new service for BPS providers to differentiate, remain relevant and competitive in the market, and deliver rapid business impact for customers (see Business Process Automation – what is Intelligent Automation?).
Posted by John O'Brien at '09:36'
We must admit to a bit of head scratching looking at the latest from Symantec. First off, there was the completion of the Veritas sale, albeit for $1bn less in cash than was originally agreed (see here), taking the whole cash/equity deal down from $8bn to $7.4bn. Then came the announcement that Silver Lake has invested $500m in the business and taken a seat on the board.
However, rather than using the proceeds to improve its position by enabling it to go shopping among the exciting security start up community for example, the cash will be pushed out to Symantec investors – to the tune of $5.5bn by March 2017. Unsurprisingly, investors liked the immediate results (activist Elliot Management among them) and responded by sending shares up c7% in after market trading,
As to Symantec’s performance, Q3 revenue dropped 6% to $909m while net income plummeted 23% to $170m. The decline was an expected part of Symantec’s three year transformation programme, that CEO Michael Brown says is focused on improving margins, prioritising R&D spend in high-growth areas, and taking the company back to its core security business. He describes the company as entering the second half of the transformation "with a stronger foundation, evidenced by new products that are gaining mindshare among customers, better top-line performance, and a clear path to long-term profitability." Freshly fed investors and Symantec watchers alike are being asked to hold the faith while the programme progresses.
A leaner and more tightly security focused company makes a lot of sense and with an ever expanding threat landscape the security market is growing, so Symantec does not have the stress of operating within narrowing opportunity. Its challenge is remaining relevant within the enterprise business segment in a much more competitive environment. R&D work is producing some promising outputs, more is to come – the business breakdown and rebuild continues.
Posted by Angela Eager at '09:26'
Pretty much reflecting the travails facing its Indian pure-play peers, Mumbai-based Tech Mahindra managed to inch ahead of the prior quarter, reporting headline revenue growth of just 0.4% for the 3 months to 31st Dec., to $1.01b. Creditably, this was not at the expense of profit; operating margins rose by 30bps qoq to 16.9%, though 3 points lower than the 20.1% result the prior year.
Tech Mahindra stands proud over its India-headquartered peers, with trailing 12 month (TTM) revenue growth of 14%, second only to New Jersey-headquartered Cognizant (see Nasscom downgrades forecasts – but still too high).
Tech Mahindra stands more stylish too, having recently acquired a controlling interest in renowned Italian automotive design house (Ferrari, Alfa et al), Pininfarina (see here). That was what you might call a ‘bold and courageous’ play, but there is apparently no truth in the rumour that Tech Mahindra will build you an app in any colour you like so long as it’s red.
By the way,if you are to believe the press speculation,Tech Mahindra seems to be the front-runner in the yet-to-be-announced race to buy HPE's renegade offshore services captive Mphasis (see Mphasis getting closer to 'zero HPE'.). If so, that would actually be a play rather less out of left field.
Posted by Anthony Miller at '08:58'
Nasscom, India’s software and services industry association, has downgraded its growth forecasts for the Indian offshore services industry for a third consecutive year, and now expects Indian ‘IT exports’ for 2016/7 (to March 2017) to grow between 10-12%. Nasscom’s forecasts for the current FY (to 31st March 2016) still sit at 12-14%, though most of the offshore services majors don’t close their books till the end of March.
Both forecasts look ambitious.
Trailing 12-month (TTM) headline revenue growth (in US dollars) for those top-tier players that have reported their results for the December quarter undershoot these numbers by far, with TCS at 8%, Infosys at 7%, Wipro at 3% and HCL at 8%. Only Tech Mahindra – the smallest of the bunch – shows TTM revenue growth in double-digits (14%), but this still leaves aggregate TTM growth for the five companies at just 7%. With Cognizant expected to report around 18% growth for the December quarter (including acquisitions), aggregate growth for the Top 6 rises to 10%.
I can see no way that ‘a miracle will occur’ this current quarter to bring the numbers up to the 12-14% growth that Nasscom had predicted.
And next year will surely be worse. The bellwether will be Cognizant which, with a calendar year-end, will be the first to give guidance on annual revenue growth when they announce results next week.
I laid out my analysis behind the dramatic slowdown in the growth of the Indian pure-plays in the lead article, ‘Be careful what you wish for,’ in OffshoreViews Q1 2015, so you might wish to refresh your memories.
Posted by Anthony Miller at '08:29'
Any review of my posts on LinkedIn will demonstrate a person not entirely a fan. See LinkedIn disappoints and work back. I only use it to look up CVs and reconnect with people I knew ages ago. I have never used it in the interactive way I use FaceBook. I have about a 1000 LinkedIn ‘connections’ but never interact with any of them. And only very rarely does anyone try to interact with me via LinkedIn. Indeed, when they do, I tell them to send me an email.
Last night LinkedIn issued a pretty dire warning in part caused by its decision to close a B2B marketing service which wasn’t working. Its outlook was for greatly reduced growth rates and, surprise surprise, LinkedIn share price fell by 28% in after hours trading and are now down 50% on this time last year.
To be fair, Q4 was pretty good with revenues up 34% yoy at $862m with Talent Solutions up 45%, Marketing Solutions up 20% and Premium Subs up 19%. This was all ahead of expectations. But the outlook was decidedly downbeat and that spooked the market.
With all the others queuing to claim 1b+ users, after 12 years LinkedIn has ‘only’ 414m with growth rates continuing to slow. Many found LinkedIn difficult to navigate on mobiles. A new mobile app was launched last month to mixed reviews.
The LinkedIn business model appears sound. Get the job seekers to build the dataset for you ‘for free’ and charge the employers to access it. No need for advertising or sponsored posts. But many (too many) like me use the dataset for free and the employers are currently unwilling to stump up the sums to make the service really profitable (LinkedIn is still loss-making after 12 years).
There are similarities with Twitter – both have an enthusiastic fan base but both find it difficult to really monetise the service. Perhaps both will get acquired?
Posted by Richard Holway at '08:09'
Perhaps Meg Whitman’s strategy is to wait until none of her clients are using Hewlett Packard Enterprise’s Bangalore-based captive, Mphasis, and then try to sell off HPE’s 60% share of what will then be an independent offshore services pure-play at some sort of premium valuation.
At least, that seems to be the direction of travel, with yet another quarter of declining revenues from Mphasis’ HP ‘channel’, which now accounts for just 24% of Mphasis’ c.$225m revenues last quarter (to 31st Dec).
As happens from time to time, the excitable Indian media gets itself all in a lather over yet another rumour that Meg is going to ‘do the deal’ – and, who knows, maybe she is. Mphasis stock is valued at some $1.4b vs its c$1bn annualised revenue run rate. Most of the remaining 40% of Mphasis’ shares are held by 300 institutional investors with about 8% held by nearly 30,000 individual investors, which would not make for an easy sale.
As for the runners and riders, the inimitable Economic Times of India puts Mumbai-based Tech Mahindra in the starting gate along with a couple of private equity players. Tech Mahindra famously rescued Hyderabad-based ERP star Satyam back in 2009 after its top management got confused with the book-keeping.
Let's hope something happens as I don’t think ‘do nothing’ is the right answer, either for HPE or for Mphasis.
Posted by Anthony Miller at '15:06'
This is a very sad story but yet again demonstrates that a noble cause does not necessarily make for a sound business model.
Manchester-based software house Bright Future Software has collapsed after running out of cash. Its ‘USP’ was that it mainly employs apprentices (180 of their 300-strong workforce) with the aim of offering lower cost skills at highly competitive rates to its clients.
Founded in 2012, Bright Futures had received Regional Growth Fund cash of £4.9m predicated on recruiting and training apprentices. Neighbouring UK hosting company UKFast is looking to take on 40-50 of Bright Future’s apprentices.
Richard Holway adds:
I am, as many of you know, a very keen supporter of the creation of entry level jobs in IT and IT apprenticeships in particular. But, I must admit I have always been wary of third parties running such training and apprenticeship schemes. I much prefer it when they are undertaken by the end employer – like Accenture or Fujitsu.
Posted by Anthony Miller at '14:07'
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‘Interoperability’ has been an important theme in the UK health and care market, and the UK public sector as a whole, for a while. But it has gained momentum in the health sector in recent months as pressure builds for clinicians to be able to securely share data between care settings. Government moves towards the closer integration of health and social care services and the goal of a ‘paperless’ NHS have pushed interoperability up the agenda.
EMIS is hoping to steal a march on the competition by being the first UK clinical systems provider to implement new open standards for interoperability in the NHS. Integrating with other suppliers has long been important to EMIS, which already enables data sharing with GP systems providers such as TPP, InPS and Microtest (see Company Snapshot: EMIS). But from mid-February it will begin rolling out an update to its EMIS Web clinical system that enables it to interoperate with any third party supplier (including NHS Trusts) which conforms to a published set of application programme interfaces (APIs). That means that over time, whatever IT system clinicians use, they’ll be able to securely share data with colleagues using any of EMIS Health’s primary, community, secondary and pharmacy clinical systems. Given the scale of EMIS’ footprint in the UK primary care market – EMIS Web is used by almost 4,500 GP practices – this is an important step forward for interoperability in the NHS.
EMIS might be the first supplier to take this step but it won’t be the last. The latest version of the GP Systems of Choice contract, which provides IT systems for primary care services, requires suppliers to open up their APIs and NHS England wants all NHS suppliers to move in the same direction. Indeed, industry body techUK has an ‘Interoperability Charter’ for health and care to which EMIS and most other suppliers in the sector are signatories. Moreover, without other suppliers following EMIS’ lead, technology will be a barrier, rather than an enabler, to new ways of organising clinical care.
Posted by Tola Sargeant at '10:02'
Yesterday the UK Government’s Public Accounts Committee (PAC) published its latest progress report on the Universal Credits programme (Universal Credit Progress Update). In summary, PAC believes the programme has “stabilised” and “made progress” since it last reported in 2013. But in conclusion: “there is still a long way to go”: There has been a further six month delay written into the plans; there are question marks over the accuracy of the business case; and there are concerns over the risk assessment.
We have written on numerous occasions about Universal Credit – see UKHotViews archive. One of the reasons it gets so much attention is because it is, currently, the biggest digital development programme in UK Government. With the next major digital project off the ranks HMRC’s digital tax account, all eyes are on the progress of Universal Credit in terms of the lessons being learnt.
There are a few pertinent points I picked out from the PAC report. 1) Lack of transparency remains a big issue in UK Government. The intention was that ‘Transparency’ would be at the heart of everything Government did. But while suppliers are asked to be more and more open and transparent, Government struggles to be transparent, particularly when it comes to revealing weaknesses or failures. Without being transparent on all levels, it will be very difficult to improve the record on major programmes. 2) Issues tend to arise when moving from the simple to the complex. So far Universal Credit has only tackled the simplest scenarios. We have heard many times from suppliers of UK Government digital projects hitting hurdles when moving from proof of concept or pilot to full rollout. The complexity needs to be considered earlier on in the process. There still seems to be a certain amount of ‘burying head in sand’ going on. 3) Central and local government need to more closely align. Universal Credit will have a massive impact on local authorities. Yet, DWP has yet to share its rollout plans with LAs or delivery partners. What happened to ‘collaboration’?
And last but not least... 4) Digital is not necessarily ‘easy’ and ‘cheap’. The Government Digital Service is renowned for highlighting how new technology is making IT projects easier and cheaper. The Universal Credit Programme was originally the domain of the ‘big guys (Accenture, IBM et al); it is they that developed the live service systems. But in early 2015, a new business case suggested a new approach for the ‘digital service’ phase, reducing the involvement of the traditional IT services suppliers. Now it turns out that the six month delay is down to a shift to the right for the planned live date for the ‘digital service’. There is also a question mark over whether GDS’ Gov.UK Verify service (a key component) will be available in time. The digital service, incorporating a large amount of automation, is expected to save £610m per year in staff costs. But for every 6 month delay, it is estimated that the programme’s benefits are reduced by £2.3b. Now, there needs to be an open assessment of the problems by the Cabinet Office and DWP so that lessons can be learnt and applied to the Digital Tax Account programme.
Posted by Georgina O'Toole at '09:58'
Cisco has acquired US firm Jasper Technologies for $1.4bn. Jasper provides a SaaS-based platform for managing internet-connected devices and works with some big-name brands including Garmin, Starbucks and Ford. As an example, it transmits real-time traffic data, weather and fuel prices amongst other things to TomTom SatNav devices. The press describes Jasper as being a “start-up”, which is something of a stretch given the company was founded in 2004 and has an established client base.
The acquisition emphasises that while the Internet of Things might feel like an over-used buzz word, it is in fact real and happening now. Furthermore, it is not a revenue opportunity that will be built solely on ‘bleeding edge’ technologies. As we say in our InfrastructureViews Predictions for 2016 (see the full TechMarketView Predictions research note here), a lot of existing technology sits behind current IoT use cases. However, there is much to be done before organisations can fully take advantage of technologies, both old and new. Inadequate security policies, a lack of standards, and limited market understanding/demand are all areas that need addressing.
We’re going to see many more acquisitions by large tech players as they build-out their IoT armoury. In particular, technology that can automate, orchestrate (manage an array of automated processes and device connections) and analyse. And we very much suspect this won’t be the last time Cisco puts its hand in its wallet.
Posted by Kate Hanaghan at '09:48'
Following a flurry of media comments after the FT broke the news, Microsoft has confirmed the acquisition of London-based mobile keyboard app provider SwiftKey.
SwiftKey enables predictive text on mobile devices, applying machine learning technologies (neural networks) to learn from users’ typing history as well as from the Internet in order to predict what they want to type next. While all predictive text apps use some form of machine learning, the smart cookies at SwiftKey have evidently done an excellent job of tuning their algorithms because its technology is used on c300m Android and iOS devices.
For the $250m Microsoft is reported to have paid, it is getting a leading provider, more exposure on iOS and Android devices which is part of its broader inclusive strategy, the scope to use SwiftKey to boost its own Word Flow keyboard app and presumably its bigger Azure machine learning services, and perhaps more importantly gain additional people with precious machine learning skills.
As to what it will do with the acquired technology, maybe Microsoft will build the link between keyboard- and voice-based machine learning in the mobile environment. As we highlighted in our extended ESAS Predictions, we believe machine learning will start to crest in 2016 and one area where it will be particularly visible is on mobile devices. Siri (Apple) Google Now, Cortana (Microsoft) and M from Facebook, use voice interfaces backed with machine learning, while Alexa Voice Service from Amazon is a non-mobile alternative. The voice aspect is particularly disruptive when combined with machine learning because it drives a different way of interacting with devices – and users.
Posted by Angela Eager at '09:32'
Although not the direct focus of attention for TMV, I know how interested our readers are with all things Elon Musk and Tesla/SpaceX. Indeed, so many of you attended the Prince’s Trust Leadership Dinner on 28th Jan 16 that it broke all fund-raising records for the event. Thankyou!
Investors in Tesla, however, have had a rough ride with shares already down 28% YTD ahead of the results next week. But I always said I had invested in Tesla with my heart not my head!
A few bits of news that might interest you:
Of course, we at TMV are never rude about anybody…
Posted by Richard Holway at '09:18'
As I was trawling through the London Stock Exchange Regulatory News Service (RNS) this morning, I chanced upon a (restated) release from India-headquartered, Isle of Man registered, AIM-listed, offshore animation services company, DQ Entertainment, which appears to be in all sorts of strife.
In a nutshell, DQ’s NOMAD (nominated advisor – required for all AIM-listed companies) has resigned, effective 22nd February, but noted that it would resign with immediate effect (hence causing immediate suspension of DQ’s shares) if the Board proceeded with the proposed appointment of two new directors, as the NOMAD ‘has not reached a satisfactory conclusion’ on their due diligence. In any event, if DQ is unable to find a new NOMAD within a month of suspension, under AIM rules its listing would be cancelled. To add insult to injury, cancellation would put DQ’s Bonds in automatic default and the company does not have sufficient funds to cover the repayment should the Bond holders ask for their money back PDQ. Oh, and there’s also a legal challenge over a recent issue of warrants and shares.
DQ listed on AIM in December 2007 at 136p per share, raising £25m and valuing the stock at £49m. At the time, DQ had revenues of some $15m p.a. and had turned the prior year’s $213k net loss into a $514k net profit. Last year’s revenues were about $30m but with a $3m loss. DQ’s shares have been in persistent decline since the end of 2010 and were sitting at 4.4p at close of play yesterday. They are now 1.5p as I write.
I just wonder whether AIM really is the right place for foreign companies with no meaningful ties to the UK to launch on a public market.
Posted by Anthony Miller at '08:46'
After the prior couple of quarters of sequential growth ahead of most offshore peers (see Hexaware keeps up the pace), Mumbai-headquartered, mid-tier services firm Hexaware found Q4 (to 31st Dec.) as tough as did the other India-based players.
Headline revenues declined by 1% qoq to $124m, though were 8% higher yoy. This had a dramatic effect on profitability, with operating profit down 13% qoq and 10% lower yoy, leaving operating margins at their lowest levels for over two years, at 14.3%.
Nonetheless, Hexaware finished the year with 2015 revenues 15% higher than 2014, at $485m, though operating margins lost over a point to 15.6%, lower than the prior three years.
With peers pedalling hard to stand still – at higher cost – it looks like 2016 will be another tough year for Hexaware too.
Posted by Anthony Miller at '16:36'
Eagle Eye’s flight is in no way impaired but it did dip marginally in H1 as execution thermals shifted.
In its trading update for the six months to December 2015, the company pointed to a stream of positives including 30% yoy revenue growth to £3.0m, the important area of transactional AIR platform revenues up 108% to £1.6m, total customer count up from 110 to 190, plus a major contract with Sainsbury's to deploy Eagle Eye AIR across all channels, while the major Asda implementation went live in the majority of stores. (Click here to review its progress).
However, messaging revenue fell 19% due to lower volumes arising from changes to the way messages are delivered for Eagle Eye’s “key client”. It expects to recover the shortfall through new customer wins but this highlights the need for balance across the business. The increasing customer count will drive that, helped by a further tier 1 international contract with Canadian grocer Loblaw that was secured post period.
Overall revenue fell short of management’s expectations due to implementation delays, the shortfall in messaging revenue and the phasing of new business wins. These are unlikely to be major issues as demand for its digital loyalty solutions is still ramping up, the major Asda roll out is going faster than expected and management says its strategic milestones are still on track.
Even eagles who are experts at soaring on thermals have to flap their wings occasionally.
Posted by Angela Eager at '09:48'
Little British Battler (LBB) Celaton has secured a major new business opportunity, securing a three-year global contract with Capgemini to provide its InSTREAM artificial intelligence (AI) system for Capgemini’s BPS business. The contract adds to Capgemini’s recent partnership with robotic process automation (RPA) provider UiPath (see here).
InSTREAM is differentiated by using AI to process unstructured content such as correspondence, claims, complaints and invoices that organisations receive by email, social media, fax and paper. With human assistance it is able to learn and improve before operating autonomously.
We met with Celaton’s CEO Andrew Anderson last week, to discuss this new win under embargo till today. It really sounds like a fantastic opportunity, which Anderson sees as a ‘massive stake in the ground about the credibility of the technology’. Apparently Capgemini and Celaton have been in discussions for a number of months, performing a full due diligence along with a number of customer pilots in areas like accounts payable and customer email automation, prior to making this announcement.
We understand that Capgemini wants as many as 30 of its BPS customers to go live with InSTREAM during 2016, which will significantly boost Celaton’s reach into the large customer accounts. Last year, Celaton added seven new customers, and delivered revenue growth of 35%.
Capgemini will license InSTREAM for its Autonomic Platform-as-a-Service (PaaS), which partners with best-of-breed players to 'improve the predictability of organisations’ operations across their infrastructure, applications and business processes'. Capgemini’s aim is to develop advanced solutions using intelligent automation, cognitive and AI technologies ‘to predict and mitigate issues before they become problems’.
Collaborations like this, between BPS providers and Intelligent Automation players, are exactly the innovations we expect to see more of in the coming months (see Business Process Automation – what is Intelligent Automation?).
Posted by John O'Brien at '09:25'
Instem is looking to build on its 2015 success in the life sciences market (see Instem continues positive performance) with the help of a £5m placing to fund strategic acquisitions and enhance organic growth. The provider of IT solutions to the global early development healthcare market has conditionally raised £5m before expenses through the placing of 2.5m shares at 200 pence per share. Given the high levels of activity in the life sciences sector with record numbers of drugs moving through the early stages of R&D, we’re not surprised that the placing (which is subject to shareholder approval) was oversubscribed. If all goes to plan, we can expect Instem to deploy much of the capital raised on acquisitions that complement its existing software products and services with the aim of helping its clients to bring their products to market faster.
Posted by Tola Sargeant at '09:21'
SaaS GRC solutions provider Access Intelligence continues to scythe away the non-core parts of its business, this time slicing off the Due North unit, which provides strategic sourcing solutions to the UK public sector.
The sale is the latest in a line of divestments and part of a bigger plan to pull back to its core offerings so the company can go to market with a clearer message and reduce the stress of being thinly stretched across too many markets (see here). Its financials are under stress – at the half year point revenue from continuing operations was up 8% to £3.4m and there was a sliver of EBITDA profit, but there were increased losses at all other levels.
Due North generated revenue of £1.79m (lower than the previous year) and a slim EBITDA profit of £0.18m in FY15 and has been sold for £4.5m cash to fellow UK business Proactis Holdings. It will slot neatly into spend control specialist Proactis who is in a strong position, benefitting from organic and acquisition driven growth. In its last full year (see here), revenue increased 69% to £17.2m with adjusted EBITDA up 140% to £4.8m. Organic revenue growth was a commendable 12%. Sourcing, spend management and eprocurement are growth areas that are benefitting from the digital transformation play. Like Proactis, SAP Ariba is shooting ahead, reporting over 2m buyers and sellers active on its network in 2015.
It is refreshing to see an asset exchange between two UK based suppliers when the trend is for assets to be snapped up by US investors rummaging around in the UK for bargains.
Posted by Angela Eager at '09:03'
UK-based ‘mobile fan engagement and sports marketing’ startup, InCrowd Sports (not to be confused with US-based healthcare industry market research startup InCrowd Inc.), has scored £300k funding from Sky. InCrowd will work with Sky Sports to develop mobile apps for real-time match analysis, interactive games, etc. The investment was part of a £1.65m funding round led by Albion Ventures which also included angel investors.
InSports was founded by the same team that led sports data company Opta, which was sold to digital sports media group Perform in July 2013 for £48m. At the time Opta was chaired by venerated tech entrepreneur John O’Connell (of Staffware fame amongst many others). O’Connell recently launched ScaleUp Group UK which aims to create Global Champions in the UK technology sector, a most worthy ambition and one we strongly support.
Posted by Anthony Miller at '08:02'
I was invited to go onto the BBC World Programme Business News at 5.30am today in London. That wasn’t the greatest way to start the day when you live in Farnham! So, sorry, the world missed my comments on Yahoo.
What would I have said?
Firstly, last night Yahoo announced that it was laying off c15% of its workforce, selling c$1b of assets like real estate and patents, closing operations worldwide to concentrate on North America, UK, Germany, HK and Taiwan as well as considering other ‘strategic options’.
Operationally Q4 saw flat revenues of $1.3b and profits of $166m. But it reported a massive $4.4b loss for 2015 as a whole (on revenues of $4.97b) as it wrote down assets like Tumblr which it had bought in 2013 for $1b.
The problems at Yahoo are ‘easy’ to understand just by looking at the excellent results in the last week from both Google and Facebook. For it is they that are taking the advertising dollar from Yahoo. CEO Marissa Meyer seems to have become delusional as she said last night that Yahoo was “far stronger, more modern company than the one I joined three and a half years ago”. Throughout that time, Yahoo’s value has been buoyed by its stake in Alababa. But it is now finding it very hard to spinout that stake without incurring a massive tax bill.
The vultures are circling and, frankly, it’s hard to see Meyer staying in situ for too much longer. Verizon and AT&T are pretty much known to be interested in buying the internet bits of Yahoo. PE firms would buy and breakup the diverse assets.
As a loyal and satisfied user of Yahoo Finance, I really do think Mayer has missed many opportunities. Rather than go head-to-head to Facebook or Google, Yahoo should have exploited its excellent data and news-rich assets like local news, sport etc as well as Finance.
If I was on the Yahoo board, I’d get rid of Mayer without delay, appoint a CEO to negotiate the best deal for Yahoo’s undoubtedly valuable assets and put its shareholders and much put upon staff out of further misery.
Posted by Richard Holway at '07:52'
Last October, when TalkTalk got hit by the now infamous cyber attack, we wrote many articles on the subject. See TalkTalk – The fallout and work back. It wasn’t even so much about the fact that the attack happened, it was far more that it had happened several times before and that TalkTalk hadn’t seemed to take the issue very seriously. We also criticised the way that TalkTalk – and CEO Dido Harding – had dealt with the immediate aftermath.
Today, the full gory details were revealed. Rather than £35m as previously estimated, the attack has cost £60m. On top of that they have lost over 100,000 customers – almost all as a direct result of the attack. TalkTalk revenues hardly grew at all in the 3 months to end Dec 15 – up just 1.8% and a significant slowdown yoy. Since the attack, TalkTalk shares have fallen c30%.
I think we will look back on the TalkTalk incidence as a bit of a turning point. Since then there is a palpable feeling that boards are taking cyber security far more seriously – even appointing tech-savvy directors/NEDs to assist. Security has gone from ‘We will spend as little as we need’ to ‘We will spend what it takes to avoid us too being the #1 item every news bulletin for weeks’. Again there is anecdotal evidence of security spend increasing dramatically. But I guess we will have to wait for this to come through in the results of some of the leaders.
If Corporates in the UK – indeed Corporates globally – are now taking our security seriously, then the pain suffered by TalkTalk will not have been in vain.
Posted by Richard Holway at '13:03'
Sage passed an important milestone last night with its Salesforce-based Sage Live solution when it announced its general availability in the UK. Following an early adopter programme, the scene is now set for the new venture to scale up.
We liked the Sage Live concept from the start (see here): a SaaS accountancy solution built on the Salesforce platform that accelerated Sage’s cloud programme by utilising the Salesforce technology and ecosystem. It also provided Sage partners and customers with a wealth of options that canny up and coming UK ISV’s Kimble and Fairsail moved quickly to take advantage of when they delivered complementary integrated applications. The accelerated cloud strategy and development, the brainchild of CEO Stephen Kelly, was a welcome move but it did appear to slow down somewhat after the initial flare However there was a lot to do technically and organaisationally.
Part of that included setting up a new partner programme. We chatted through some of the aspects with the Sage team last night and like the sound of the types of partners coming on board, these include major global SI’s which will be a first for Sage. Dynamic versions of Sage’s more traditional partners are also being lined up – those will the capacity and appetite to take the cloud journey. Acuity, who worked with UK Sage Live early adopter Kingpin Communications (B2B digital marketing for technology customers) could be a model for the new style Sage partner. Details of the partner programme will be revealed over the coming months.
Talking to Kingpin was also informative. This is an SMB taking full advantage of digital change, including making the most of its valuable data assets. The company rates Sage Live because it helps deal with the speed of the business through aspects such as multi currency capability, real time data, and particularly front to back office integration.
We hope it all adds up to Sage accelerating in the cloud.
Posted by Angela Eager at '10:06'
Edinburgh-based specialist SaaS provider Craneware continues its progress in the US healthcare market, with a major new contract and a reseller agreement with a payment services company.
The major customer who has recently signed up with Craneware is an operator and consolidator of over 50 US hospitals. The contract is for Craneware’s Chargemaster system which aims to provide better patient outcomes and optimal financial performance, also driving standardisation and scale efficiencies across the participating hospitals. This contract is expected to generate US$7.5m over its initial five-year term.
Additional value will be created by Craneware’s agreement with the US-based automated payment technologies and services company, VestaCare. Customer hospitals will be able to access the VestaPay suite of payment solutions over Craneware’s mobile patient engagement platform to address particular patient needs and also to manage credit risk and financial reporting more effectively. Craneware will receive an annual licence fee plus a share of additional revenues collected. This additional functionality all ties in with Craneware’s vision of the Value Cycle, combining operational, financial and clinical data to optimise the use of the hospitals’ healthcare assets.
The company delivered US$45m in revenue and >US$14m of EBITDA last year (to June 2015), see here, so it looks as if Craneware is well ahead of the pack of SaaS companies in general, see “SaaS company profitability….”. Last month’s trading update indicated a 10% lift in H1 EBITDA and 7% in H1 revenue. With more contracts, a deepening portfolio of services and cash in the balance sheet to exploit further opportunities, we can reasonably expect further progress from Craneware.
Posted by Peter Roe at '09:27'
A very interesting survey published by entrepreneur David Skok of US VC firm Matrix Partners highlights the struggle that SaaS players have in achieving meaningful profitability.
According to Skok, the median EBITDA margin (note: EBITDA, not EBIT) achieved by the 305 SaaS companies in his study was -5% (that’s minus, folks) in 2014. Margins ranged from -23% for SaaS companies with annualised recurring SaaS revenues of $10-15m, up to +5% for companies with revenues of $2.5-5m. This was against average gross margins for subscription revenues of 79%, of which 32% was Sales & Marketing spend. Estimates for 2015 bring the median EBITDA margin up to +1%.
Yes, I know the argument about ‘growth over profit’ but I beg to remind you of two of Miller’s Maxims:
Posted by Anthony Miller at '08:55'
Sopra Steria, the broadly based provider of consulting, solutions and BPS, has announced a strategic alliance with SAS, a leading analytics company. Sopra Steria also becomes the first strategic partner to achieve SAS’s Gold-level status requirements in the UK. This follows a long period of consistent investment by Sopra Steria in building its SAS Centre of Excellence. The analytics portfolio provided by SAS, coupled with Sopra Steria’s scale and integration capabilities, is seen as providing differentiation and added value in a competitive market, particularly in the Financial Services sector.
The SAS link adds to Sopra Steria’s proposition in the FS focus areas of fraud, risk and regulation as well as in the management and optimisation of support and delivery functions. The list of service offerings supported by the SAS link include Platform Management, Data management and visualisation and a wide range of analytics functions.
In our January FinancialServicesViews report “Sopra Steria – working together in UK Financial Services”, we examine the company’s activities in this key sector, with a particular focus on its progress in the Banking Software market.
Posted by Peter Roe at '08:39'
Bangalore-based offshore services major, Infosys, is to erect “the world's tallest free-standing clock tower” at its training centre in Mysuru (Mysore), according to reports in the ever effervescent Economic Times of India.
The initiative apparently caters to the whim of Infosys co-founder and ex-chairman, NR Narayana Murthy, who reportedly believes that the campus was "incomplete without a clock tower. A clock tower brings a sense of academic breathing to the campus, and I felt we too will need one. And (Infosys CEO) Vishal (Sikka) felt it is a good idea."
ET reports that the tower, which will cost $10m and, at 135 meters, will be taller than Big Ben, is to be built in Gothic style “to meld with the classical look of the other buildings in the campus” (Ed: Hmmm - see pic). It will have 19 floors and a board room at level seven. The report did not confirm whether Infosys Directors will need to don ear plugs on the quarter-hour.
Posted by Anthony Miller at '07:23'
Hats off to Alphabet (the company previously known as Google) – their Q4 results are pretty good. As a result, in after-hours trading, their shares are up c6% (making them ‘worth’ c$550b) and will undoubtedly open tomorrow at a level valuing Alphabet > Apple (worth c$535b at today’s close).
Unlike Apple, Google growth is accelerating – revenues up 18% yoy to $21.3b in Q4 (actually +24% in constant currency). Operating profit was up 22% at $5.38b. Google headcount was up 15% at 61,814.
For the first time, Alphabet declared revenues and losses for what it refers to as ‘Other Bets’ – ie all the experimental stuff outside of what we know as Google. ‘Other bets’ losses increased from $1.94b in the year to 31st Dec 14 to $3.57b in the latest year. Revenues increased from $327m to $448m. ‘Other bets’ – which some observers refer to as ‘Moonshots’ – include driverless cars, Google Fibre, delivery drones, Nest thermostats and a host of other stuff including some that have not been too successful like the Google Glass. But ‘Other bets’ should be set against its revenues from its ‘Alpha bets’ of $74.54b and profits of $23.42b for the latest year.
Yet again ‘Cost per click’ reduced yoy by 13% in Q4 but the ‘Number of Clicks’ increased by 31% - hence the revenue increase. Google also joined Apple and Facebook bragging about ‘Billions of users’. Indeed Gmail has now crossed the 1b user threshold as well as Search, YouTube, Chrome, Android etal. Just as Zuckerberg’s ambition is to ‘Connect the World’, Google reckons that its cheap Chromebooks and free WiFi services will ‘bring the next billion online’.
I’ve had my doubts about Google’s longevity. Facebook seemed to be adapting to the mobile world rather better. But Google has performed in mobile much better than I expected. Many were doubtful about the ‘moonshots’. But it really is difficult to criticise these results. The core business is booming and, as Alphabet themselves say, you can’t build the future without investing today. The huge investment still looks quite modest in comparison to their profits. Indeed capex has reduced every quarter since the new CFO – Ruth Porat – joined.
Difficult not to be impressed.
Posted by Richard Holway at '22:23'
London-headquartered gaming platform FACEIT has raised $15m in a Series A funding round from Anthos Capital, Index Ventures and United Ventures. The company has also opened an office in Los Angeles. Founded in 2012, FACEIT has developed a tool kit for games developers “to easily integrate user-friendly matchmaking and tournaments into their titles”. Game on!
Posted by Anthony Miller at '09:55'
The cancellation of the Building Schools for the Future (BSF) continues to constrain RM (see RM continues on long turnaround path) with FY15 revenues falling 12% yoy £178.2m. Adjusted operation profits were down by 1.8% to £18.2m but adjusted operating profit margins rose by 1.1 percentage points to 10.1%.
Revenues at RM Education, the division directly affected by BSF, fell by 28.3% yoy to £80.2m; including revenues from managed services dropping by 35.5% to £32.2m and revenues supporting schools’ infrastructure requirements down by 25.8% to £40.3m. Management inform us that the division’s performance will stabilise in 2016 fuelled by academies looking to suppliers to support their ICT requirements. Revenues from digital platforms were unable to stem the declines, growing by just 1.1% to £7.7m with competition in schools’ management software particularly intense (see Ones to watch from BETT).
RM Resources increased revenue by 7.6% to £63.5m. The division is switching emphasis from catalogues to online channels; online sales accounted for 30% of direct marketing sales and a completely new e-commerce platform will be released this year. The division now generates sales from over 80 countries with international revenues up by 31.6% yoy to £11.1m.
RM Results increased revenue by 10.4% yoy to £30.7m including a three year contract with the education charity AQA. The priority for the next twelve months will be renewing the contracts for providing school performance tables on behalf of the Department for Education; RM has been the incumbent for over 10 years.
RM has been buffeted by changes in government policy and the operating environment remains difficult with schools tightening their budgets. However by supporting the ICT requirements of academies and both RM Resources and RM results continuing to build international revenues; RM will finally put the cancellation of BSF behind it.
Posted by Michael Larner at '09:54'
BT has announced a strong performance in Q3, with reported revenue up 3% and showing a significant improvement on Q2.
Again, Consumer was the star performer with revenue up 11% and ARPU up a healthy 7%. However, the BT management were able to report good performances for Global Services and BT Business.
Global Services showed a good underlying performance with a 2% growth in the UK and overall. UK Public sector revenue declined again, but this was offset by a large equipment sale and 6% growth in Continental Europe and 7% growth in BT’s “Higher Growth” markets. EBITDA was up by 9% with a further improvement in cash flow. Some of this cash was diverted into new product development, with an expansion of the Cloud Services portfolio, further investments in conferencing and also a push on security and cyber-crime. Orders were down on a very strong comparative period, but the mix of orders was said to be significantly better, with major orders from the European Commission, Atos and the DWP. BT Business was able to grow EBITDA by 1%, despite a further decline in voice, boosted by a strong growth in IP services.
The management warned that Q4 Group revenue would be hit by a number of factors such as new pricing arrangements and slower growth in consumer revenue. However, guidance is being edged up, with the anticipation of full year revenue growth of 1-2%. There will be higher leaver costs and also additional expenses involved with the reorganisation (see here), but the company is now suggesting a “modest growth” in EBITDA of 1-2%
Much is happening at BT, supported by a 90-page slide deck accompanying today’s series of announcements, so there will be much for us to comment on going forward.
Posted by Peter Roe at '09:49'
For its third quarter, Fujitsu saw revenue unchanged (at 1,166.9bn yen) over the comparable period last year. Revenue in Japan declined 1.5%, but outside of Japan revenue was up 1.2%.
Operating profit was 14bn yen, down 19.1bn yen on the previous year. This was largely due to the 17.6bn yen Fujitsu ploughed into “business model transformation expenses” in the EMEIA region. For example, the costs relating to the closure of a product development facility in Europe. In terms of the underlying business, Europe is doing well at the moment with little doubt it is taking market share from competitors in certain countries.
For the full year, Fujitsu is reducing its overall forecasts for both revenue and profit. Top line forecasts have been reduced by 80bn yen to 4,800bn yen based on reduced expectations for the Technology Solutions segment (due to lower demand for network products) and lower demand in the Device Solutions segment. The forecast for operating profit has been reduced by 20bn yen to 130bn yen, although the Services sub-segment has actually seen projections for its profitability revised upwards.
Fujitsu has also just announced that Robert Pryor, CEO Americas, has resigned and we understand the region will now be run by Duncan Tait, current CEO of EMEIA. Tait has really made his mark on Fujitsu since joining from Unisys in 2009. First taking on the Private Sector then moving to head UK&I, and then being appointed to the Fujitsu board in 2015 – the first non-Japanese person to attain such a position. Since then, Tait’s responsibilities have extended to EMEA, now the US, and maybe one day ‘the World’?
Duncan has introduced a new, more functional, structure within Europe with some key appointments still to be announced. Indeed the ‘transformation expenses’ referred to above were in part due to this restructuring.
Posted by Kate Hanaghan at '09:37'
Nottingham-based calendar synchronisation API startup Cronofy has raised $1.6m in a seed funding round led by London-based ‘seed to stage’ venture platform Firestartr along with Amsterdam-based VC firm henQ. According to TechCrunch, Cronofy is a ‘pivot’ from entrepreneur Andy Bird’s first calendaring venture, One Diary.
Cronofy’s API synchronises calendars between organisations, and is designed as a B2B tool for companies to automatically update customers’ calendars in real time. Pricing is in US dollars and ranges from nowt for up to 20 users through to $149 per month for 1,000 users.
I must admit I don’t quite understand the business model and in any event I’m not sure I would want anyone other than me automatically updating my Outlook calendar. But the technicals sound neat so good luck to them I say.
Posted by Anthony Miller at '09:31'
At TechMarketView we are constantly on the hunt for small British firms that are doing interesting things – hence our Little British Battler programme. Last year, Lemongrass Consulting caught our eye following our discovery that it had landed what was probably Europe’s largest AWS/SAP implementation.
What is notable about the drive to digital is that in many areas of the market it is flattening the competitive field. Consulting and technology specialists are highly sought after not just by enterprises but also by established suppliers that are looking to partner with, or acquire, such entities. Lemongrass is talking to some seriously big global brands and its perseverance (and education of the market) is starting to pay off. It has already ousted IBM from an account in which it had been an incumbent supplier for 15 years.
In this SME Snapshot research note, we take a closer look at Lemongrass Consulting to understand a little more about the company and its activities. Subscribers can read it here.
If you would like to become a TechMarketView subscriber, please contact Deb Seth.
Posted by Kate Hanaghan at '09:16'
With its back office and ecommerce focus, and all the related complexities, cloud pure play NetSuite did not chose an easy path. Nevertheless it is achieving consistently high growth, the latest being 33% revenue growth to $741m in FY15 (see here). International growth is high on its agenda and despite an established presence in the UK, there is scope to do much more.
It is ramping up at a time when the competition for mid market cloud ERP is heightened however but it is a challenger to pre-cloud providers and part of the competitive firmament around emerging providers with strengthening cloud credentials like Unit4, Infor and UK players like Advanced Computer Software and Access Group. If you are an eligible subscriber you can download our analysis of NetSuite here. If not, contact Deb Seth for information on how to subscribe to TechMarketView.
Posted by Angela Eager at '09:15'
BT has announced a new structure following the EE acquisition. It will now have six customer-facing business units, the new structure accommodating the arrival of EE business and re-balancing the operations selling into the business and public sectors. The proposals are unlikely to create a major distraction as they involve lifting and shifting a few major blocks.
Consumer remains as before, under CEO John Petter, and will work alongside the new EE division under Marc Allera. The EE brand will be retained. The overlap of portfolios of these two operations will be being sorted out as the acquisition moves to complete by end 2015/16. In the longer term these operations could well fuse to serve the “quad-play consumer”, but the proposed structure is probably the path of least disruption.
The big decision is to separate UK Public Sector out of Global Services and join it with BT Business and the small EE business unit. This business will be headed by Graham Sutherland, previously head of BT Business. BT probably sees its biggest growth potential lies in smaller PS organisations in health/social care/telehealth/telecare. It will also link the very profitable BT Business (33% EBITDA margin in 14/15) with the PS business which has been under pressure as large contracts ended.
Global Services continues under Luis Alvarez, serving the communications needs of multinationals and financial services companies. Around 20% of GS had been Public Sector. Wholesale will combine with a number of specialist businesses, including some EE MVNOs and will be headed by Gerry McQuade, currently head of sales and marketing at EE. Openreach will remain as is, under new CEO Clive Selley and the customer-facing units will be supported by an enlarged Technology, Service and Operations business.
We will re-visit this re-organisation as more details emerge.
Posted by Peter Roe at '09:11'
The very day that Wipro COO (and ex-TCS exec) Abidali Neemuchwala formally ascended to the top job (see Changing of the guard at Wipro) came the news (first reported in the illustrious Economic Times of India) that Ulrich Meister, Head of Continental Europe & Africa has resigned. He joined Wipro from T-Systems back in November 2013 (see here).
In an unrelated report from the same organ, it appears that three Wipro employees in Kolkata (Calcutta) have been arrested in relation to the recent cybersecurity attack at UK telco Talk Talk.
There's nothing like hitting the ground running!.
Updated 5 Feb: I have only just been informed by the company that Ulrich Meister left Wipro as a result of a medical condition. His departure was not prompted by the change in CEO, and I appreciate the opportunity to make this point clear.
Posted by Anthony Miller at '08:42'
Xerox’s shares rose 6% on Friday after announcing a formal separation into two publicly traded companies – one focused on document technology (printers and copiers) with $11bn revenue, and one focused on business process services (BPS) with revenue of $7bn.
The announcement comes just two months since rival HP became two publicly traded companies HP Inc (printers and hardware) and HP Enterprise (IT/BP services) (see HPE ‘off to very strong start’ says CEO). It’s not the first time that Xerox has 'copied' one of its competitors. Back in 2009, it made its biggest acquisition gamble acquiring Affiliated Computer Services (ACS) to move into the high growth BPO market (see Xerox ‘copies’ Dell – buys ACS).
Xerox’s takeover of ACS has ultimately been its undoing, after quarter-on-quarter of disappointing results. In Q415, BPO revenues were down 2% in constant currency (ccy) and services overall were flat (ccy). The services pipeline meanwhile is down 15%. Services was supposed to be the growth driver.
This separation is exactly the bold decision Xerox needs to take to have a chance of re-igniting its fortunes in the digital age. The problem is it should have happened much sooner, since competitors like HP are simply far further, far faster. Rival copier maker Lexmark is however also in the same conundrum, attempting to transform itself via the recent acquisitions of Kofax and Readsoft (see here). It too is now looking at ‘strategic alternatives’.
Xerox aims to complete the separation by the end of 2016, but as part of a three-year strategic transformation that will deliver $2.6bn in savings. Far more needs to be made of how the two new businesses will invest for the future - because it’s post separation that the real hard work will begin. We look forward to hearing more over the coming months.
Posted by John O'Brien at '08:30'
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