Dear Mr. Berko: I have $60,000 that I can afford to risk in cloud computing stocks, which is where the action is supposed to be. My broker wants me to own Red Hat, EMC, Brightcove and Informatica. Could you recommend four other cloud stocks for me to consider? — DV, Cleveland
Dear DV: "Ah, but a man's reach should exceed his grasp, or what's a heaven for?" wrote Robert Browning in 1855.
It seems many businesses are reaching for the cloud and succeeding beyond what I should have imagined. Salesforce.com (CRM-$71.50) — a software as a service, or SaaS, provider — is one of the cloud companies that I panned in 2012 and 2013 because it was losing hundreds of millions of dollars. Common sense, logic and Confucius say companies that continue to lose hundreds of millions each year must fall in price or go bankrupt. Well, common sense, logic and Confucius are old hat today. CRM continued to climb from $25 to $78 (adjusted for a 4-for-1 split), and so did revenues. In 2004, revenues were $201 million, and CRM established its home in the cloud, where the rules are different from the ones here on earth. This year, with over 100,000 clients in 70 countries, revenues have climbed to $6.5 billion, but CRM will still post a loss of $65 million. In this upside-down, "Alice in Wonderland" world of frantic investors, driven by trillions of dollars of free Federal Reserve money and zero gravity, red has become the new black and losses are the new profits. Investors, fearful of missing the next Apple, Microsoft or Google, become frantic speculators, panicked into buying everything with the word "cloud" in its literature.
Cloud stocks and SaaS providers are way beyond my ken. My 53 years in this business has taught me to respect the old-fashioned way of investing: "Only buy stock in companies whose products you understand and that have rising revenues, rising profits, rising dividends, a good income statement and a strong balance sheet." What a joke that is today! Because I don't know enough about cloud stocks to recommend any, I called my friend Mongo Flootworth, an investment guru who called the May 6, 2010, flash crash 16 minutes before it happened. Mongo, who looks like a walking mug shot, gave me the following cloud issues, which he believes will quadruple (LOL) in price in the next five years.
Zendesk (ZEN-$22) provides organizations with a SaaS customer service platform so they can manage online customer interactions, track and anticipate common questions, and provide a seamless path to answers. Revenues for 2015 should be $190 million, with $265 million expected in 2016 but no profits on the horizon.
NetSuite (N-$90.55), without profits in sight, offers cloud-based financials and omnichannel commerce software suites in the U.S. and internationally. Revenues were $595 million in 2014. N should record $730 million this year, and revenues in 2016 possibly will reach $986 million. After losses every year since it came public in 2007, there's a remote possibility that N will report a 25-cent-per-share profit this year. That would represent a mile-high price-earnings ratio of over 368-to-1.
Splunk (SPLK-$59) indexes massive amounts of data, allowing companies to gain real-time intelligence. SPLK collects, accumulates, searches, explores, monitors and analyzes data regardless of format or source users. Revenues for 2012, 2013, 2014 and 2015 were $190 million, $300 million, $450 million and $650 million, respectively. SPLK has lost money every year since coming public, accumulating over $600 million in carryforwards. Next year, revenues may be $800 million, and the company should lose only $225 million.
Veeva Systems (VEEV-$26) is a customer relations management solutions company that helps pharmaceutical and biotech companies to market and sell compliantly to health care professionals and organizations. Veeva, with $390 million and $495 million in 2014 and 2015 revenues, respectively, has been modestly profitable for several years and should make 49 cents a share this year, with possible annual increases.
A more conservative way to play the screwy cloud game is to own First Trust ISE Cloud Computing Index Fund (SKYY-$29), which in the past 12 months is plus 8.6 percent, with a three-year total return of 16 percent. It's much less risky.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.