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Sage’s Cloud Migration To Slow Growth, Says New CEO

U.K. small business (SMB) accounting software firm Sage is anticipating a slowdown in growth as it focuses on its migration to the cloud, Reuters reported recently.

The firm’s new CEO, Steve Hare, spoke during an earnings call for the company, noting that its focus on subscription services means the Sage product line will continue its cloud shift. In the short term, this means slower revenue growth, he said.

Sage reported 6.8 percent organic revenue growth for the fiscal year ending in September.

Hare took up the position after former CEO Stephen Kelly announced in August that he would step down, amid sluggish growth and problems in Sage’s cloud migration process. Previous reports stated that the company had fired 30 executives in May to streamline the company amid the cloud shift. Kelly will remain with the company until next May, while Hare has been named interim CEO.

According to Hare, 46 percent of the company’s revenue stems from its software subscriptions, a 15 percent increase from several years ago. Accelerating its subscription growth means “more investment in the short term, but the prize will be stronger, higher-quality, sustained revenue growth,” said Hare.

“Cloud and emerging technologies are moving quickly, and we need to invest to make sure we can stay ahead in terms of what we can offer to our customers,” he added, according to Reuters.

The company is planning a $77 million investment to accelerate its cloud migration and bolster its subscription businesses. Sage forecasts its organic operating margin to decline, ranging from 23 percent to 25 percent next year, compared to the 27.8 percent posted this year.

Shares in the company dropped 2.4 percent following the announcement. According to unnamed Barclays analysts interviewed by Reuters, however, the shift is necessary for Sage.

“However,” the analysts noted, “as we have seen with others before it, cloud transitions are not quick and do require significant investment.”

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