Is cloud computing the next tech bubble?

Box CEO and co-founder Allen Levi

Is cloud computing the next tech bubble? Jeff Rivers, a foreign media columnist, said Reeves, the cloud storage company that recently submitted its IPO application, has suffered huge losses over the years, and the other two listed cloud services companies, Workday and NetSuite, have not yet made a profit and are also in serious losses. The industry's competitive incentives, corporate sales and marketing expenditures are high, creating high revenue is not difficult, difficult to make profits. Such markets are unsustainable and overly optimistic investors are causing trouble.

The following are the main contents of the article:

Box has just submitted the S-1 listing application this week, becoming the latest company to ride cloud computing.

While the media continue to preach the concept of "cloud", another 20-year-old baby-face CEO is poised to ring the clock on Wall Street, but investors need to start to see the current bubble in stocks.

"We have a history of cumulative losses and are not expected to make a profit in the foreseeable future," box told the Securities and Exchange Commission (SEC). ”

"We have recorded huge losses since our inception in 2005," he said. In the fiscal year ended December 31, 2011, the net loss of USD 50.3 million, net loss of USD 112.6 million in the fiscal year ended January 31, 2013, and a net loss of USD 168.6 million in the fiscal year ended January 31, 2014. As of January 31, 2014, we lost 361.2 million dollars in total. ”

Worse, the company plans to raise only $250 million trillion in its IPO financing-an amount that is not even enough to fill the two-year losses that will occur at the current rate of burning money.

Like many Silicon Valley companies, Box also has a two-tier shareholding structure in which its insiders hold a Class B stock of 10 votes per share, while investors who take a stake in an IPO gain only one share of the vote – a structure that ensures that the box completes its financing without losing any power.

So where does the problem come from?

Count the underperforming cloud companies

True, the Box CEO, Aaron Levie, is not a bad leader Yaren. Is that Wall Street is now salivating over companies like Box ... It is not justifiable to bring the cloud storage company to the capital market in a good time when the time is ready and there is a strong willingness to invest.

To some extent, Wall Street has a reason to be enthusiastic about the cloud. There is no doubt that there is a lot of room for growth in the industry, and the market research firm IHS estimates that by 2017 the cloud-related market would have reached $235 billion trillion--more than $145 billion in 2013, Non-payment even a small share of the market, which could prop up the company's huge revenue potential.

On the other hand, making profits is much more difficult. This applies to all areas of the cloud computing industry.

In workday, for example, the company is different from box, providing cloud software for accounting and human resource managers. But it is also a member of the cloud service industry.

Workday's February results show that in the fiscal year ended January 31, its sales and marketing costs amounted to $197 million trillion-more than 55% per cent of the company's total revenue (354 million US dollars). Workday was in a huge loss in 2012 and is not expected to make a profit this year and next.

The same is true of rival NetSuite. Its latest performance report shows that it has seen another big loss in the year ending December 31, with sales and marketing spending reaching $210 million trillion, accounting for 63% of the company's total revenue (more than $333 million).

NetSuite, which went public by the end of 2007, has not yet achieved profits. For it, getting new customers is more urgent than making ends meet.

Of course, NetSuite and Workday have another competitor,--salesforce.com.

Salesforce has more customers than they do and is more mature and has a yearly income of $3.8 billion trillion. But it has also increased its marketing efforts recently to enhance its competitiveness. In the fiscal year ended January 31, Salesforce marketing and sales were close to $2.2 billion trillion, accounting for 58% of total revenue.

But Salesforce is expected to make a profit at least this year.

In the case of the companies listed above, the market is very competitive and it is not easy to make a profit in this part of the cloud computing market.

The cloud computing industry is not that simple: netsuites and workdays have easy access to big revenues because their target market is large because big companies like Oracle and SAP are not as flexible and still rely on their traditional technology business.

However, given the current huge marketing spending, it is clearly not easy for them to seek growth in the cloud industry – and hence lack of revenue.

Back to the latest cloud computing "darling" box, it's not hard to see that the stories that happen in the enterprise software and customer Relationship Management (CRM) Application markets can also occur in the cloud storage area.

Box is mired in losses, and the main competitor, Dropbox, must have seen a similar situation, with giants such as Google, which has a similar product like Google Drive, continue to force box and similar products to intensify their pursuit of new users, making them totally incapable of focusing on profitability.

Saying that the market is unsustainable is a matter of heavy talk. It is not unreasonable for many observers to call it a bubble.

Problems with cloud computing stocks

Of course, if you are in a period of growing industry, you can make a lot of money even in the face of bubbles. Think about 18 months ago that the IPO was priced at $28 trillion, and now its share price has risen to $100 workday. In addition, NetSuite's IPO was priced at $26 when it was launched in December 2007 and now has a stock price of around $100.

It is clear that investors are willing to give these companies overvalued values.

But if their growth stalled, valuations would plunge. At the beginning of 2014 years, cloud computing companies have been loosening their shares. Workday's share price has fallen 17% since its peak in February. NetSuite also dropped about 20% last month. This means that optimism in the market may be cooling.

Another sign is that the mood of workday has recently intensified. By mid-March, more than 6 million shares had been sold, significantly higher than the nearly 3.6 million shares at the end of last October.

The privacy concerns of the Snowden event and the "Big Data" era have also caused a lot of trouble for the cloud industry. The New York Times recently reported that Microsoft and IBM had taken some big contracts because foreign clients were concerned about privacy issues.

In addition, to migrate their own platforms to the cloud, large enterprises will face the actual operation of the great trouble and prepaid problems. In the past few years, the biggest listed companies have not been willing to pay for any of IT products, which means that companies may still struggle to get big customers, chasing many small customers this thankless drudgery will continue for some time.

Of course, there is nothing wrong with this game. To point out, Amazon is a typical representative of technology stocks that have sacrificed profits in exchange for scale. Those who are dissatisfied with the company's relatively small profits have been repeatedly hit.

Now, however, investors are sceptical about cloud computing.

When did the bubble burst?

True, traditional tech giants like Oracle and Cisco have little investment appeal. In fact, Oracle just missed quarterly revenue forecasts last week, stoking the traditional criticism that it is being swallowed alive by smaller cloud computing rivals.

At the same time, workday is expected to record more than $725 million trillion in revenue this fiscal year, up from a staggering 440% from the 134 million dollar increase two years ago.

So it's not hard to understand why cloud stocks are soaring. But what if that growth slows? The world is hard to anticipate.

Companies in the industry are overvalued, and there is no room for fault tolerance. Investors who accept this kind of story may be overly simplistic about the challenges and opportunities now facing corporate technology stocks.

There may be no sign of a collapse of the cloud-computing stock, but the bursting of the bubble could end the tragedy of many cloud companies.

If you want to do it, do the band trade, take the ride ... But they also have to be honest about the stocks and the risks they have.

Translator: Lebang

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