After a good run over the last year, Subex shares dipped 8% in trading yesterday. Other Indian tech firms were also down, but an 8% fall suggests that Subex’s share price is more volatile than the norm.
Following the bad run which saw ECtel eventually delisted and merged with cVidya, is this a sign that markets struggle to price tech solutions they do not really understand? Investors and analysts are not alone in struggling to put a price on products like revenue assurance. The TMF has identified the goal of robust valuation of the economic benefits delivered by revenue assurance, which may be of some use to vendors, at least when chasing sales. However, I doubt this will greatly change the perception that RA vendors remain a relatively risky investment. Part of the conundrum lies in the closing the gap between the one-off ‘hit’ of benefits when a new system is sold, and the ongoing benefits that the RA community would like to show it delivers. If RA vendors could shift to earn a higher proportion of their revenues from ongoing licenses and services provided to the same customers year after year, that might help change how investors perceive their business model. Of course, that also means less sexy P/E multiples and more robust dividend yields if RA vendors decisively move from the ‘buzz’ of offering something new to a more steady model of generating recurring income from long-term partnerships with telcos. In that sense, RA vendors are like a microcosm of the telecoms industry – pulled between the differing advantages of presenting themselves as companies that represent exciting growth opportunity or businesses that grow more slowly but generate robust revenues even during an economic downturn. That means there will be pressures no matter what direction RA vendors set for their businesses.