Sage shares tumble as it warns of declining licensing software sales
Sage’s share price fell 12% after the UK IT company revealed sales of traditional software plummeted in the first nine months of the year.
Sage’s core software revenue fell 15.5% year-on-year to £ 195million, he said today, blaming underperforming sales of his old X3 as it passes. to its cloud-based accounting software.
Read more: Micro Focus chairman drops £ 11.6million in shares
As a result, the company expects its profit margin to fall to the lower end of the forecast, between 23% and 25%.
Total organic revenue increased 5.3% year-on-year to £ 476 million.
But shares fell 12.5% to 714.2p on the London Stock Exchange this morning as investors liquidated the company, which is trying to reorient itself as a cloud computing company.
It is trying to replace legacy X3 license sales with subscription-based cloud revenue.
The company reported strong recurring revenue growth of 11.4% to £ 405m in the third quarter, up 10.6% to £ 1.2bn for the year to date.
This was supported by a 28% increase in cloud subscriptions.
“We remain encouraged by the progress made in recurring revenue in the first nine months of fiscal 19,” said CFO Jonathan Howell.
“[This reflects] Sage’s focus on high quality subscriptions and recurring revenue as we continue to transition to be a great software as a service company.
David Madden, analyst at Markets.com, warned traders against overreacting.
“It is not ideal that profit margins are at the low end of expectations, but we always expect them to be at a healthy level, ”he said.
“The stock hit an all-time high at the start of the month, so sentiment was clearly bullish ahead of today’s numbers, and it looks like today’s decision is a profit-taking.”
Madden added that Sage’s stock price still has a chance to prosper despite the slowing momentum caused by today’s downturn.
“Despite today’s negative move, the wider uptrend is still intact, and although it holds above the 700p mark, the wider uptrend is expected to continue,” a- he declared.
Read more: Sage shareholders hail progress on their journey to the clouds
Sage has replaced former chief executive Stephen Kelly after a four-year tenure last year amid investor doubts about the company’s ability to convert customers to its cloud-based products.
Former CFO Steve Hare took the reins last November and has since overseen a 55% rise in the company’s stock price of 525p per share.