Security technology, cloud computing, business analytics, storage, and wireless were the top five sources of tech spending increases, according to the Computerworld 2015 Forecast Study, with the biggest jump coming from cloud computing and business analytics.
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CloudCommerce Inc. (OTCQB: CLWD) plans to capitalize on the growth in these tech industry subsets by acquiring strong companies in a roll-up strategy. By acquiring experts in e-commerce, digital marketing and enterprise commerce solutions, management aims to build a e-commerce super-competitor that lets each subsidiary operate autonomously while pooling resources and sharing ideas in order to generate cost savings and cross-marketing opportunities.
In an exclusive interview with SECFilings.com, CloudCommerce President & CEO Andrew Van Noy sat down with SECFilings.com’s Mike Elliott to discuss the company’s new strategy over the coming months and what it means for investors.
Making the Jump
Earlier this year, CloudCommerce announced the acquisition of Indaba Group, an e-commerce developer focused on the Magento platform, as a first step in its strategy. The purchase brings a profitable and growing operation into the fold that meshes well with CloudCommerce’s existing e-commerce development operations, as well as an experienced leadership team consisting of Founder and CEO Ryan Shields and CTO Blake Gindi.
Since the acquisition, Mr. Van Noy and Mr. Shields have been flying around the country meeting with potential targets for its next acquisition. The criteria for these acquisitions hasn’t been set in stone, but Mr. Van Noy indicated that they are largely seeking profitable and growing operations led by strong management teams that share the same long-term vision.
This kind of roll-up strategy isn’t unique to the technology services industry. In the past, PFSweb Inc. (NASDAQ: PFSW), Perficient Inc. (NASDAQ: PRFT), and Cognizant Technology Solutions (NASDAQ: CTSH) have all built up sizable businesses using the same type of model. CloudCommerce differentiates itself by focusing on smaller companies with $5-10 million in revenue that are operating in cloud-based services.
CloudCommerce’s focus on pursuing cloud-based acquisitions couldn’t come at a better time. While the company operates on a much smaller scale than many tech giants in the space, the rapid growth, increasing profitability, and mergers/acquisition activity among cloud computing companies has wetted Wall Street’s appetite and led to higher multiples for everyone in the industry – including many of the smaller comps in the space.
Microsoft Corp. (NASDAQ: MSFT) reported revenue that fell 12% last quarter, as sales of Windows fell, but its cloud computing business made up for the difference in profitability – helping earnings soar past analyst estimates. In addition to providing subscription-based consumer software, the company’s Azure platform has rapidly risen into second place behind Amazon Web Services as a leading infrastructure-as-a-service platform.
Of course, Amazon.com’s (NASDAQ: AMZN) quarterly financial results also underscored the power of the cloud. While e-commerce sales remain its core business, Amazon Web Services is quickly rivaling its size with revenue that jumped nearly 80% to $2.09 billion – easily topping analyst estimates of less than $2 billion. These cloud services are only poised to grow over the coming years as consumers and businesses transition away from physical hardware.
Dell’s purchase of EMC Corporation (NYSE: EMC) for a record $67 billion highlights was the icing on the cake for the cloud sector. As the largest tech acquisition in history, the purchase provides the historically hardware-centric company with a powerful cloud business and a majority stake in VMware Inc. (NYSE: VMW) – a server virtualization company that lets customers take advantage of servers without having to purchase the hardware.
CloudCommerce represents a unique opportunity to capitalize on a solid management team that’s in the early stages of executing a roll-up strategy in a fragmented industry. With a market capitalization of just $1.8 million, the company trades at a fraction of its potential in the space, while its strategy of acquiring profitable and growing firms could keep its burn rate low and ultimately generate a lot of value for shareholders over the long-term.
For more information, visit the company’s websites at www.cloudcommerce.com.