Sage’s shares fell more than 13 per cent on Friday as the FTSE 100 accounting software group said it would ramp up spending next year to capture small businesses as they shifted to cloud computing.
Sage said its full-year revenue fell 1.7 per cent to £1.9bn, slightly ahead of consensus estimates, while operating profit rose 5.8 per cent to £404m.
After stripping out businesses that Sage has agreed to sell in Poland, Switzerland, Asia and Australia, full-year operating profit fell 3.7 per cent to £391m.
The company said it was betting that the “pace of digital transformation” among smaller businesses was accelerating and so it planned to increase investment in its Sage Business Cloud software offering, stepping up spending on sales, marketing and research and development.
As a result, it warned that its operating margin would be knocked by up to 3 percentage points in 2021, and that it hoped that margins would “trend upwards” after next year “as the investment drives recurring revenue growth and operating efficiencies”. Sage’s share price has dipped 21 per cent since the start of 2020.
Sage has been shifting away from licensing fees and towards a subscription model, and said that recurring sales now made up nine-tenths of its revenues as customers shifted over to its Business Cloud platform.
“I am confident that our additional investment in Sage Business Cloud, and in particular cloud native solutions, will deliver stronger growth and drive the future success of the group,” said chief executive Steve Hare.
“The results were fine — they were broadly in line,” said George O’Connor, analyst at Stifel. But he added that “the big disappointment was on guidance and outlook”.
The market was “tussling between growth and value at the moment,” he said, “as people try to look forward and think ‘what does a recovery look like?’”.
“You have Sage trying to back both horses, being part growth and a part income kind of stock, and not doing either of them particularly well.”