Sage’s shares fell more than 13 percent on Friday as the FTSE 100 accounting software group announced that it would increase spending on small business coverage for the next year if they move to cloud computing.
According to Sage, full year sales fell 1.7 percent to £ 1.9 billion, slightly above consensus estimates, while operating profit rose 5.8 percent to £ 404 million.
After excluding companies that Sage plans to sell in Poland, Switzerland, Asia and Australia, operating profit for the full year fell 3.7 percent to £ 391 million.
The company, anticipating the “pace of digital transformation” in smaller businesses to accelerate, planned to increase investment in its Sage Business Cloud software offering and spend on sales, marketing, and research and development.
As a result, she warned that her operating margin would decrease by up to 3 percentage points in 2021, and hoped that margins would “trend upward” after the next year “as the investment leads to recurring revenue growth and operational efficiency” . Sage’s share price has fallen 21 percent since early 2020.
Sage has shifted from licensing fees to a subscription model, saying that recurring sales now account for nine-tenths of its revenue as customers move to its business cloud platform.
“I am confident that our additional investment in Sage Business Cloud, and especially in cloud-native solutions, will result in stronger growth and drive the future success of the group,” said CEO Steve Hare.
“The results were fine – they largely agreed,” said George O’Connor, an analyst at Stifel. But he added that “the big disappointment was with the guidance and outlook”.
The market has “struggled between growth and value right now,” he said, “as people try to look ahead and see what a recovery looks like.”
“You have Sage that tries to support both horses, is part of the growth and part of the income, and neither does either particularly well.”