- Cloud-native ARR grows 30 per cent
- Broker increases earnings forecast by 4 per cent
Accounting and HR software company Sage (SGE) is showing some counter-cyclical qualities. The company has made the argument that its efficiency-improving software will be more in demand as potential customers face rising costs, and recent results suggest this hypothesis could be true.
Sales growth is maintaining momentum. In the six months to March, cloud-native annual recurring revenue (ARR) increased by 30 per cent to £612mn. This was slightly down from the 43 per cent growth in the same half last year, but on an underlying basis, this year’s organic growth was 32 per cent, a rate that is impressive enough.
Cloud-native growth was driven in part by the performance of Sage Intacct – a US business acquired in 2017. Intacct grew ARR by 30 per cent in the US and is now being launched in continental Europe, starting with France. The company said non-US revenue doubled, but this is presumably from a fairly low base. However, this will grow and geographic diversity will improve resilience.
Across the group – which includes non-cloud-native products – ARR rose 12 per cent to £2.1bn. Of the £222mn increase in ARR, £190mn came from new customer acquisitions. If you have watched any sport this year on TV, you are likely to have seen a Sage advert appear. Its marketing push seems to be working given it continues to pick up new business despite the worsening economic conditions.
Yet the ultimate effect of the wider economic backdrop on the business is still unclear. Sage sells to small and medium-sized businesses, so widespread bankruptcies would remove potential customers. However, with costs rising, its accounting and HR software can help companies improve efficiency. Meanwhile, rising interest rates may also clear out some older less tech-savvy businesses and make space for new start-ups that will want cloud accounting software.
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