It continues to be a challenging
investment environment for tech stocks and our On-Demand (or SaaS) index
confirms that environment. The On-Demand Index is down 16.80% YTD. The Dow is
down 5.91% YTD, Nasdaq Composite index is down 11.09% and the iShares
S&P GSTI Software Index Fund (IGV)
is down 10.31%.
The On-Demand Index is a classic example
of momentum investment changing course. A recent example has been the financial
stocks, using the Financial Select Sector SPDR (XLF) as a proxy, has been on a
roller coaster ride the last few months. Financial stocks experienced a sharp
reversal with the surprise decision by the Fed (in an emergency session) last
week to reduce rates by three-quarters on a point. With the overhang of a
potential recession and a slowdown which is currently underway, it is unlikely
that momentum with shift on tech stocks or the on-demand companies in a
positive direction until a catalyst signals an “all clear” for tech spending. It
will take some time for us to have visibility to tech spending for the year.
Many companies are being cautious until
that “all clear” sign is posted and others, especially in hard hit industries
such as finance, may actually cut back IT spending plans. However, never
underestimate the importance of data for companies today and, in particular,
financial firms. Business analytics is, or has become, very important for
businesses both to operate and to grow. During a business recession, everything
is on the table to cut costs but not everything is treated equally. BI is
ranked number one again, for the third year in a row, in CIO plans because it
delivers business ROI (return on investment.) The on-demand companies are not
recession-proof or bear market proof (their stock performance proves that).
Many of these companies deliver applications with solid business value and in a
very cost-effective and resource-effective manner, so long-term these companies
and their applications should grow and prosper.
fyi: The index is calculated on an
equal-weight representation based on closing prices as of 12/31/07.
Disclosure: I have no current stock
positions in any of the companies listed in this index and no current business
You are correct about cut backs. Everything is on the table. But – there are some areas that will remain untouchable. Online backup and disaster recovery for example is mandated by legislation and good business practice. We are not seeing a drop off in expansion in companies like Storage Guardian (http://storagegurdian.blogware.com).