The Technology One Limited (ASX: TNE) share price has been amongst the worst performers on the market on Tuesday.
In early trade the Software-as-a-Service (SaaS) company’s shares are down 11.5% to $8.00.
Why is the Technology One share price crashing lower?
Investors have been selling Technology One’s shares this morning after it released its half year results.
For the six months ended March 31, the company reported a 5% increase in revenue to a record $129.3 million and a stunning 130% lift in profit before tax to a record $24.5 million.
A key driver of this strong growth was its SaaS offering. During the half SaaS Fees Recognised increased 42% to $37.5 million thanks largely to a 39% jump in large-scale enterprise SaaS customers to 389.
Management explained that these customers have hundreds of thousands of users, making its multi-tenanted ERP SaaS offering the largest in Australia.
At the end of the period the company’s SaaS Annual Contract Value (ACV) had grown 45% on the prior corresponding period to $85.8 million.
The company’s CEO, Edward Chung, was very pleased with the result and explained the secret to its success.
He said: “Our SaaS offering is delivering a compelling value proposition for our customers providing them ‘any device, anytime access from anywhere around the globe’, defence-in-depth security as well as a simple and cost-effective way to run their enterprise. This allows our customers to innovate and meet the challenges ahead with greater agility and speed, without having to worry about underlying technologies.”
Adding: “We take care of everything for our customers, making life simple for them. The economies of scale that we are delivering to our customers are unprecedented in the enterprise space.”
This strong performance allowed the Technology One board to increase its interim dividend by 10% to 3.15 cents per share.
It appears as though it is the company’s outlook which has spooked investors and led to many hitting the sell button this morning.
Management provided full year net profit before tax guidance of only $71.6 million to $76.3 million. This will be an increase of just 7.7% to 14.7% on FY 2018’s $66.5 million, which implies a sudden slowdown in the second half.
Beyond that, Mr Chung sees plenty of room for growth. He said: “We will continue to grow quickly, and like we have in the past 32 years, we expect to double in size again in the next 5 years.”
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.