Avoid This Slow-Growing SaaS Stock
Many publicly traded software-as-a-service companies pour cash into sales and marketing to rapidly acquire new subscription customers. Since the revenue from those customers is recognized over time while the costs to acquire them are largely incurred up front, SaaS companies often report big losses as they're scaling up their businesses.
These losses are not a problem as long as the sales and marketing spending is producing enough new customers, and as long as those customers are profitable for the company in the long run. If you can spend $100 to acquire a customer that will spend many hundreds of dollars with your company for years, it makes sense to run a loss to grow your customer base.
Not all SaaS companies are equally good at translating sales and marketing spending into growth or profits. One company that seems to be having a lot of trouble is cloud content management provider Box (NYSE: BOX). Box slashed costs last year and narrowed its losses in the process, but the company's growth relative to how much its spending to drive that growth is reason for concern.
Source Fool.com
