Are Investors Increasingly Wary of Cloud Companies?

Are Investors Increasingly Wary of Cloud Companies?

Venture capital doesn't seem to be lacking when it comes to cloud companies, but are other investors becoming wary of the cloud? Reports indicate stocks are down even as the cloud continues to thrive.

Don’t believe the sky is falling quite yet (or, in fact, ever; Chicken Little was a liar), but it looks as though investors are starting to think twice about putting their stock money into cloud computing companies. The reason is certainty, as several major cloud companies have dropped in price since their initial public offerings (IPOs), and it seems to be deterring others from filing their SEC prospectuses for now.

An article in The Economic Times goes into detail as to “why investors have suddenly become wary of putting money in cloud companies.” It cites a postponed IPO by cloud file sync and storage company Box earlier this year as the catalyst for a poor spring, during which several companies—including Rackspace (RAX), Red Hat (RHT), Amber Road, Q2 Holdings and Paylocity—saw their stocks drop.

As noted in the article, investors previously had been bullish about placing their money in cloud companies’ stocks, but now there’s more skepticism in the investment community.

Poor cloud. It just can’t catch a break.

Or can it? Despite a “sudden” drop in stock prices of many cloud companies, some of which perhaps should have thought better of filing for an IPO, cloud companies are seeing their businesses build and are finding a huge influx of cash from venture capitalists looking to get into the next big thing in the cloud.

But when you take into consideration accounting figures such as a $169 million loss with annual revenue of $125 million in a fiscal year (those are Box’s numbers from its last fiscal year), it’s easy to get concerned and reminisce on the simpler days of the dot-com bubble bursting. Cloud doesn’t have the same kind of stink to it that the dot-com bubble did, though.

That doesn’t mean there won’t be a reckoning for companies that simply can’t turn their financials around and start to show a profit, though. Some of them have already fallen by the wayside, but expect others who haven’t found a profitable cloud business model to either close up shop or be acquired over the next few years as cloud continues to grow.

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