Cloud computing is the future, but the "cock silk" business or not to play

[Abstract] The "seamless access" experience provided by cloud computing will bring a lot of real money, but investors have to be patient. Cloud computing is the future December 1, the latest issue of the United States, the famous financial magazine "Barron" wrote an analysis of the current cloud computing market trends. The article points out that, compared with Microsoft and other traditional software giants, cloud computing software industry in the early period of fixed assets and equipment investment is too large, resulting in the entire industry into a profit dilemma. However, due to strong market demand and the large-scale development of industry, cloud computing industry's future development trend is still bright. The following is the full text of the article: the development of the Internet in the late 90, one of the most important enlightenment is: the so-called "seamless access" e-commerce industry needs real gold and silver as a strong support. The current cloud computing industry is another reminder that profitability is the survival of the industry. Like Big Brother Microsoft, current cloud computing software companies are selling software code products. However, unlike Microsoft's CD-integrated software, the software companies run software code on their respective server computers, and corporate customers who need the software directly access the servers via the Internet. Free cash flow yields are low these emerging software developers are more like telecoms operators because they need to build and maintain a large number of servers to keep their software well stored and running. We'd better call these software developers software "carriers". Because upfront network and server construction need to invest a lot of money, so most cloud computing software developers current profitability is generally weak. Workday, a successful IPO two years ago, is becoming a powerful developer of cloud computing software. Workday's fiscal year revenue is expected to grow 67% to 785 million dollars a year from the end of next January for fiscal year 2014. But after spending 101 million of dollars on purchases of property, office space and equipment, WORKDAY's net cash profit from the cloud computing software business was only a pitiful 7.6 million dollars. In other words, its free cash flow rate of return (Free,cash,flow,yield,, hereinafter referred to as FCFY) is only 1%. And software giant Microsoft this year revenue will reach 98 billion dollars, its fcfy is expected to reach 26%. In other words, Microsoft will have 25 billion dollars in cash this year to pay dividends and buy back shares, or simply deposit the money in the bank. Of course, Microsoft has a history of nearly 40 years of development, compared with it seems unfair. But throughout the cloud computing software industry, its fcfy and capital concentration levels are simply not comparable to the High-yield businesses that Microsoft has built. A survey of 22 cloud computing software companies found that its fcfy average was only 4.5%, no higher than the 2% of internet retail giants Amazon. And Amazon is the industry's lowest profit margin, the most concentrated technology giants. These 22 companies include workday, online travel booking systems Sabre, it commercial software companiesServiceNow and marketing software company Marketo. In the great cause of stock option expenditure, investors often pay much attention to the performance of these cloud software companies in stock options. In the first 9 months of this year, workday's share options cost as much as $117 million, accounting for 21% of its revenue. As the world's largest cloud computing software developer, Salesforce.com's share option revenue in the first 9 months of this year is just over half that of workday, but real spending is as high as $413 million trillion. However, the fixed expenditure of stock option has blurred the proportion of fixed assets expenditure in the revenue. After all, the latter is the most important foundation for a software company to run a server. For the 22 companies, the cost of their fixed assets is much higher than that of the veteran software companies such as Microsoft. According to FactSet of the Market Research Institute, Microsoft's spending on fixed assets and equipment in fiscal year 2014 could be 6%, accounting for 19% of its operating cash flow. In stark contrast, the 22 software companies in the current fiscal year, the average fixed asset expenditure revenue ratio may reach 8.6%, accounting for the proportion of its revenue cash flow may be as high as 207%. That is to say, each of these companies will have to spend 2 dollars on investment in fixed assets and equipment for every 1 dollars in cash net profit. These figures also vary according to the specific circumstances of each company. Cloud customer Service Processing application Zendesk spent 19 million dollars in the first 9 months of this year to lease office space and to buy servers and the necessary equipment related to cloud services, which directly led to the company's cash flow to a negative 19 million dollars. Wall Street analysts expect the company's capital expenditure to be 34 times times the size of its revenues this fiscal year. This year, investors have been selling cloud-computing software stocks as a whole. Saleforce's share price rose 8.5% per cent during the year, becoming one of the best performing shares in the cloud computing unit. Workday's share price increase was only 4.7% per cent during the year. ServiceNow's share price rose by as much as 14% in the year, thanks to the company's potential takeover target for IBM or another big technology company. The problem is that if a company needs to spend 2 of dollars to make a net profit of 1 dollars, why is the whole industry showing its current vitality? In short, there is a strong demand for the market. An increasing number of enterprise users want to eliminate the cost of installing a new application by buying cloud computing services and eliminating the cost of running the software. As a result, many young start-ups are taking this approach to compete with older software giants such as Microsoft, Oracle and SAP. The future of cloud computing is that, over time, software developers will become less expensive to run software. As cloud software developers grow in scale, incremental costs for their new users will fall. This means that each server can assumeMore and more customers are running the software, and the net profit generated by each server is getting higher. Large cloud computing software developers such as Workday and Salesforce have a relatively high ratio of capital expenditure or capital expenditure to free cash flow compared with smaller competitors in the industry. However, the entire cloud computing industry does not appear to be showing any signs of reducing the cost of fixed assets, so it will be some time before the inflection point of overall revenue exceeds costs. After that, there can be a blowout growth in net profits. However, investors have not given much patience to the huge capital expenditures of the cloud computing industry this year. (Jing)