Morning Report: Cloud stocks are setting new records. Again.
A collection of cloud and SaaS stocks tracked by a venture capital firm is setting new records as the basket of companies continues to outperform major American indices.
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The result points to continued investor enthusiasm for shares of companies that deliver software through the Internet, often charging for it on a recurring basis. Selling software as a subscription has become a critical business among technology companies who prize both the high margins possible from the arrangement, as well as the revenue consistency that contracts and regular payments ensure.
The dark blue line is the Cloud Index, the red line the Nasdaq, green is the S&P and the venerable DJIA is the purple-ish line at the bottom. Note that there is some X Axis time compression pre-2017.
Since the inception of the Index in January of 2011, the collection of cloud companies are up over 680 percent while the Nasdaq is up a more pedestrian 202 percent.
The Index helps us understand why several things are still happening. The IPO boom, for example, is likely at least partially predicated on continued public-market enthusiasm for growth-oriented technology companies, something that the Cloud Index illustrates. And the rising value of recurring revenue that the Index companies (among others) have brought to the public markets impacts startup valuations as well.
It’s all quite bullish, and while there will come a morning when I write to you discussing how far the above line has fallen, and how quickly, for now, it’s still up and to the right.
Illustration Credit: Lianne Dias