Global Macroeconomic Conditions Weigh on Altium’s Performance
Top strategist from Goldman Sachs believes that the technology sector will continue to outperform in the short term. Undeniably, the sector’s resilience is evident through multiple trading days where the Nasdaq Composite was the only index that finished in the red. Closer to home, tech stocks drove the ASX to record a weekly gain of 1.6 per cent for the week ending 19 June 2020. However, this positivity fails to hold in the case of local tech player, Altium Limited.
The electronic design software firm has today, 22nd June 2020, released its latest trading update. Specifically, Altium anticipates that while revenue for the full year remains solid and continues to increase, gains are likely to be minimal. More notably, results will likely come in lower than forecasts as part of broader macroeconomic conditions. This is because of various reasons. Foremost, its operations in Beijing has been affected due to the new lock-down measures in China.
The capital city of China was deemed a COVID-free city on 09 June 2020. Yet, with the gradual resurgence of cases, a second wave of virus remains highly possible. Therefore, Altium has resorted to shutting down its Beijing office temporarily while employees continue to lock in deals from their respective remote working conditions. Secondly, the increase in COVID-19 cases in parts of the United States are also weighing down on the firm’s final run-up before the financial year ends. Presently, daily cases are trending at four-week highs.
For many years now, the last two weeks of the financial year have been the prime period for Altium. This is because the firm usually closes a massive amount of its second-half business during this time. Nevertheless, Altium continues to lock in deals, with large-scale deals currently in its pipeline of opportunities. While seat growth is 7 per cent higher than that of the previous corresponding period, the firm’s pricing methodology adopted as a result of COVID-19 acts as a double-edged sword.
In light of the pandemic, Altium has continued to support its clients and boost volumes by offering attractive pricing and extending payment terms. On the one hand, this will enable the firm to be one step closer to attaining its key target of 50,000 subscribers. On the other hand, this approach will also weigh down on potential full-year revenue for Altium Designer.
Chief Executive, Aram Mirkazemi views the firm’s strategy to be the appropriate way to go. Mr Mirkazemi believes that supporting Altium’s customers and to boost volumes during tough times are both strategically sound measures. Yet, as published on the company’s website, Altium will take on new pricing effective 01 July 2020. This means that full pricing for Altium Designer will take effect with no delayed payment conditions from 01 September 2020. Nevertheless, Altium remains to be fundamentally sound with a strong balance sheet of more than US$75 million as of May 2020.
By Caroline Wong
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