• Sun. Oct 24th, 2021

“OVHCloud has a lot to prove, a path of penance awaits it on the stock market” – La Tribune


Oct 14, 2021

As he prepares to list OVHCloud on the Euronext Stock Exchange, Octave Klaba, the founder and chairman of the board of directors of the European cloud champion, would have been well without such a stroke of fate. Wednesday morning, a computer failure – the second in six months after the fire of a data center near Strasbourg – for a good hour shut down the websites of thousands of its customers around the world.

In the end, nothing serious: the reaction was quick, efficient and transparent. It was not even a real failure because the OVHCloud servers have never stopped functioning. The malfunction was the consequence of an unfortunate human error by an engineer during an IT maintenance operation, which made the sites impossible to find via the IPv4 connection protocol.

OVHCloud failure: a simple human error without seriousness, but at the worst time

No euphoria in sight during the IPO

Massively reported by the media, could this second incident in six months significantly impact the OVHCloud IPO, scheduled for Friday, October 15? ” In itself, this failure is not serious, does not reveal a fundamental fragility and was quickly resolved. Investors know that a failure can happen, and besides it happens even to the American giants ”, relativizes Jacques-Aurélien Marcireau, co-director of equity management at Edmond de Rothschild Asset Management. ” What is more embarrassing is that this is the second incident in six months. This does not consolidate the confidence of customers and investors, already somewhat attacked by the fire in March ”, he adds.

Even if this episode is bad in terms of image for the group based in Roubaix, it will influence only marginally on the support or not of the markets, agree the analysts consulted by The gallery. ” Investors especially look at a whole series of tangible financial criteria such as EBITDA, the valuation multiple, then management, the company’s strategy and the outlook for the sector, before taking into account a small IT incident quickly. rule “, explains financial analyst Jean-Christophe Liaubet, partner at Fabernovel, a digital consulting firm.

But if investors should be indulgent towards the blackout, OVHCloud’s big leap on the stock market does not appear to be easy. ” I would be very surprised if there was euphoria, because many factors, which relate both to the company itself and to the current context of tension in the markets, make OVHCloud a bit risky investment ”, estimates Frédéric Rozier, portfolio manager at Mirabaud France.

“The success of OVHCloud’s IPO is very important for all of French Tech, the symbolic dimension is very strong to show the way for others. But the markets are not going to sign a blank check. I’m not afraid of a failure as the IPO was well prepared, but most likely investors are waiting to see if OVHCloud will deliver on its promises over the next few quarters. The company still has a lot to prove. I think a path of penance awaits him on the stock market before a possible consecration ”, Jacques-Aurélien Marcireau analysis.

Why OVHCloud is betting on the stock market to become an alternative to Gafam

Digital sovereignty, OVHCloud’s number 1 asset

After having hoped for a valuation of 4 billion euros and a fundraising of 400 million euros, Octave Klaba and its managing director, Michel Paulin, finally aim, according to the IPO document, a valuation of 3.7 billion euros, at a price of 18.5 euros per share, and hope to raise the markets around 370 million euros. The stakes are high for OVHCloud, which needs money to finance its ambitious growth trajectory, set at 25% per year over the next four years.

Born in 1999, with 1.6 million customers and a turnover of 650 million euros in 2020, the Roubaix nugget has a few trump cards in its game to attract investors.

The first is its status as the European cloud leader. OVHCloud occupies a unique place: on the one hand, it is very far from the American giants, because the turnover of Amazon Web Services, Microsoft Azure and Google Cloud amounts to tens of billions of dollars per year. But OVHCloud is still the European leader in the field of cloud infrastructures (IaaS for infrastructure-as-a-service, editor’s note) and the only player in the Old Continent capable of carving out a place for itself in this growing market dominated by Americans.

At a time when companies and organizations must accelerate their digital transformation and switch to multicloud, it’s time for OVHCloud to step up to change dimension and attract these new customers. Especially since Octave Klaba fully plays the card of digital sovereignty, a promising theme and at the heart of the concerns of the European Union and its member states.

The company was thus able to overcome the barrier of the SecNumCloud labeling of Anssi, impassable for most of the other French players, in order to propose offers within the framework of the “cloud of trust” strategy »Imposed by the State. This sesame allows him to sign a partnership with Google to propose a common offer intended for operators of essential services (OSE), and another with French Whaller to equip public administrations with cloud tools.

“OVHCloud’s strategic positioning is its main asset because it embodies the formation of a European solution, in a hyper-growing sector which offers very high rates of return despite the enormous investment needs”, confirms Frédéric Rozier, from Mirabaud.

OVHCloud is not overvalued

In contrast, two of the four pillars in OVHCloud’s growth strategy make analysts more skeptical. This is its ability to compete with the giants of the sector outside Europe, and to succeed in its diversification into Paas (platform-as-a-service), that is to say complete its offer to also offer the hardware and operating systems needed to enable customers to develop their business software on their own, as do global industry leaders.

This PaaS market is huge – 50 billion euros per year according to Michel Paulin, CEO of OVHCloud -, growing strongly, and the company has ambitious goals: it wants to offer 40 software suites and 80 services by the end of 2022.

But the decorrelation between OVHCloud’s ambitions and the reality of what it does today in PaaS could be of concern to investors. “OVHCloud part of PaaS by far, so the market is asking questions ”, tells us another analyst who wishes to remain anonymous. ” The challenge of recruiting talent, which is a huge dark cloud for the entire tech industry and which is crucial to succeed in PaaS because it will require hiring hundreds of engineers, and the challenge of external growth, are necessarily risk factors for investors ”, adds Jean-Christophe Liaubet, from Fabernovel.

But analysts also note that OVHCloud, while showing great confidence in its ability to deliver its beautiful promises, has opted for a reasonable valuation. Fixed at 3.7 billion euros, it is equivalent to 14 times the EBITDA (263 million euros in 2020), which is not excessive in tech.

“In the best case, if OVHCloud delivers the 25% annual growth it promises and lays the groundwork for PaaS and international markets, its valuation could easily reach between 6 and 7 billion euros in the coming years. “, says Jean-Christophe Liaubet.

But for now, it is impossible to rule out the dark scenario where the company disappoints, does not manage to pass a growth course, and must raise funds in a few years on the basis of a lower valuation. Especially since in terms of image, OVHCloud has not yet really recovered from the fire in its Strasbourg datacenter, last March, which cost it 55 million euros in operational costs and commercial gestures. with customers, but we have not yet seen the possible consequences on the “churn”, that is to say the retention of customers at the time of renewal of their contract. Data that investors are watching closely.

A culture of tech risk still to be built in Europe

Hence the ” path of penance “ expressed by Jacques-Aurélien Marcireau: in the purest tradition of tech companies, OVHCloud embodies both a great opportunity for daring investors who would like to support a company full of potential, but also a real risk as the path is uncertain.

“Because our tech ecosystem is newer and less powerful, European investors do not have the same risk culture as their American counterparts. In Europe we value execution more than vision, we have a culture of short-term profitability rather than that of conquering the market, ”adds Jean-Christophe Liaubet.

There is also the timing, which analysts do not find ideal.

“The previous French tech introductions of the year [Believe et Exclusive Networks, ndlr] have been disappointing, the global market is saturated with tech IPOs, fears about global growth are straining the stock markets, and rates tend to rise, which penalizes the tech sector which needs large investments ”, notes Frédéric Rozier, from Mirabaud.

And another analyst summed up: “ por me, OVHCloud goes public three months too late or two months too early ”. A disconcerting timing, but which should not penalize the French unicorn too much. Especially since according to our information, many investors known as “Tibi”, that is to say the bancassurers mobilized by Emmanuel Macron to invest in the nuggets of the tech, should not miss the opportunity to support the figurehead of French Tech in the deep end of the Stock Exchange.

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