Execs at Britains biggest tech firm Sage were in bullish mood today despite conceding the last six months “had not gone to plan”.
Around £1.5bn has been wiped from Sages market value since mid-January as investors took a dim view of a dip in its revenue growth. But lets just underline one thing here: Sages top line isnt shrinking; its revenue just isnt increasing at an ever-faster rate.
Across the Atlantic, Silicon Valleys finest woo investors with rocketing revenues. Tesla, for example, is expected to report around $3bn (£2.2bn) of first-quarter revenue tonight. But this comes at a cost to the loss-making firm – to be precise: an expected three-month cash burn of $1bn.
Sage finance chief Steve Hare told City A.M. today “you need a lot of conviction” to back the likes of Tesla. Its something of an “all or nothing” trade, unlike backing the “strong fundamentals” of Sage, he said.
Drawing parallels with Apple, Sage is swimming in cash. Until yesterday, it was feared iPhone sales could be on the wane; despite its cash coffers bursting at the seams. Meanwhile, almost all (99 per cent) of Sage's first-half profits were converted into cash. The Newcastle-based firm is throwing off almost half a billion pounds each year. This has allowed it to grow its dividend every year since 2001 – something not many of Britains blue-chip index can lay claim to.
Revenue growth is the natural focus for tech investors. But they would be wise not to be overly critical of Sages sagging growth. It's a cliche, but investors will do well to remember: "Revenue is vanity, profit is sanity, but cash is reality".