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Soros Caught in ClickSoftware Rout That Puzzles Analysts

By Gabrielle Coppola and Edith Waringa Kamau
June 29, 2014 10:10 AM EDT 453 Comments
Soros Fund Management LLC was among firms that bought shares in nationalized lender Bankia as part of a 1.3 billion-euro ($1.8 billion) stake sale by the government in February.
Photographer: Simon Dawson/Bloomberg
Soros Fund Management LLC was among firms that bought shares in nationalized lender Bankia as part of a 1.3 billion-euro ($1.8 billion) stake sale by the government in February.

Analysts and investors have never disagreed more about what price to pay for shares in ClickSoftware Technologies Ltd. (CKSW), the Israeli developer whose largest stockholder is billionaire George Soros.

ClickSoftware, which makes computer programs to manage workforces, reached a five-month low on June 4 and has plunged 25 percent to $7.60 this quarter, the second-worst performance on the Bloomberg Israel-US Equity Index. Still, analysts maintain the shares will climb to an average price of $13.33 in the next 12 months. That marks the biggest difference on record, according to Bloomberg compiled data going back to 2007.

While the Nasdaq Composite Index (CCMP) has rebounded from its selloff earlier this year, small-capitalization software companies like ClickSoftware that are transitioning their business to cloud computing have missed the recovery rally. Investors dumped the stock even after the company boosted its 2014 revenue forecast, citing increased sales to cloud customers.

The company “was a bystander getting hit by the market accident we saw,” Shaul Eyal, an analyst at Oppenheimer & Co., said by phone from Tel Aviv on June 27. “I’m approaching the quarter with a positive bias, I’m not expecting any major negative surprises.”

Eyal, one of four analysts covering the stock, has a buy rating on the shares and raised his price target to $13 after the first-quarter earnings report. ClickSoftware’s stock has risen 1.3 percent during the first half of the year, lagging the 5.5 percent gain on the Bloomberg index of the most-traded Israeli shares.

Monthly Payments

Cloud computing allows information to be stored online instead of on a specific computer. Moving to the cloud means forgoing upfront contracts with lofty profit margins in favor of software-as-a-service (SaaS) products that pay off monthly and can be canceled if customers aren’t satisfied.

While the shift into the cloud-based software market saddled the Petach Tikva, Israel-based company with its first annual net loss in eight years in 2013, the company forecast 2014 total revenue of as much as $132 million on April 30, up from a previous cap of $115 million. It is scheduled to report second-quarter earnings on July 24.

“I don’t think the weak performance we saw back in fiscal 2013 is going to repeat itself in the coming quarters,” Eyal said. “I think we are mostly done with the transition, and should see fruition in the second half of the year.”

Soros Stake

Revenue based on cloud computing will surpass traditional software sales in the next year or two, Chief Executive Officer Moshe BenBassat said in late March. He wasn’t available to comment when contacted after normal business hours in Israel on June 26.

Soros Fund Management owned a 9.9 percent stake in ClickSoftware as of March 31, according to regulatory filing. With a net worth of $26.4 billion, Soros is the 23rd-richest person in the world, according to the Bloomberg Billionaires Index. Michael Vachon, a New York-based spokesman for the fund, didn’t respond to an e-mailed request for comment.

ClickSoftware’s 25 percent drop in the second quarter compares with an average decline of 3.4 percent on a total return basis among information technology and software industry peers. The Nasdaq gauge rose 4.7 percent in the period, while the Bloomberg Israel-US index fell 1.2 percent. The TA-25 Index is 1.2 percent lower so far in the second quarter, and rose 0.1 percent at the close in Tel Aviv today.

Still, three of the four analysts covering the company maintain a buy rating on the stock.

“We too are perplexed by the decline in the stock, and can only point to the overall weakness in SaaS-related stocks over this same period as a possible explanation,” Matt Blazei, an analyst at Lake Street Capital Markets LLC in San Francisco, wrote in an e-mailed response to questions. “ClickSoftware has a very stable recurring revenue stream, which is only improving as it continues to transition its legacy license business to the SaaS model.”

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net; Edith Waringa Kamau in New York at ekamau2@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Marie-France Han

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