The Cloud Could Turn Dark

by Tom Taulli | November 2, 2012 10:10 am

[1]For the mega tech operators, like IBM (NYSE:IBM[2]), Intel (NASDAQ:INTC[3]) and Google (NASDAQ:GOOG[4]), the third quarter has been horrible. Even Apple (NASDAQ:AAPL[5]) had a somewhat disappointing report.

So, might the fast-growing cloud companies also be facing weakness? So far, it’s not clear. For example, the slowdown in information-technology (IT) spending seems to be a problem in Europe and Asia. However, for many cloud companies, revenues are often concentrated in North America.

Yet there are signs that problems may be spreading. Just look at last week’s report from F5 Networks (NASDAQ:FFIV[6]), which develops technology to deliver networked applications for enterprises.

On the conference call, F5 CEO John McAdam noted that North America saw weakness, especially for larger orders. He said there is a “conservative spending environment.”

As for guidance for the fiscal first quarter, F5 sees adjusted earnings of $1.14 to $1.16 and revenues of $363 million to $370 million. The Wall Street consensus was for $1.20 per share and $373.5 million.  On the news, F5’s shares plunged by 11% to $81, hitting a 52-week low.

But again, might the cloud still be different? After all, the technology tends to be more cost-effective. It also provides benefits with leveraging data, such as getting better analytics. And cloud-based software often uses mobile devices.

Given all these factors, it makes a lot of sense that the cloud is gaining market share. But this may not be enough. Keep in mind that there has been a surge in cloud IPOs over the past year, such as with ServiceNow (NYSE:NOW[7]), Workday (NYSE:WDAY[8]) and Eloqua (NASDAQ:ELOQ[9]). It’s common for the deals to sport 50%+ returns from their offering prices.

In other words, investors may want to start to lock in profits. And in light of the general economic sluggishness, this may be even more imperative. So, for those thinking about making a play for the cloud, it’s probably a good idea to be patient.

Tom Taulli runs the InvestorPlace blog IPOPlaybook[10], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.[11]” Follow him on Twitter at @ttaulli[12]. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. [Image]:
  2. IBM:
  3. INTC:
  4. GOOG:
  5. AAPL:
  6. FFIV:
  7. NOW:
  8. WDAY:
  9. ELOQ:
  10. IPOPlaybook:
  11. How to Create the Next Facebook.:
  12. @ttaulli:

Source URL:
Short URL: