Why is software major Sage Group’s share price falling today?

[Lawrence McOchillo]

[Simon Mugo]

Shares of British software major Sage Group Plc (LON:SGE) fell today after the company announced that its earnings for the third quarter would be on the lower end of its previous forecast and that revenues generated in the past nine months would miss analysts’ estimates.

Sage is at a delicate transition phase as it works to shift from its legacy software business to the now popular software-as-a-service (SaaS) business model, which is more reliable in terms of recurring sales and has been adopted by other legacy software businesses such as Microsoft.

The software company grew its recurring revenues to £1.18bn in the nine-month period, a 10.6% increase, but revenues from its legacy business fell 15.5% to come in at £195m during the same period.

Jonathan Howell, Sage’s CFO said: “We remain encouraged by the progress made in recurring revenue... We expect full-year FY19 recurring revenue growth to slightly exceed guidance of 8-9% and… organic operating profit margin to be at the lower end of the guided range of 23-25%.”

Investors and analysts were disappointed by the large decline in SSRS sales as they expected a maximum decline in the mid-single digits.