*WINNER* Cloud Services - Silver Lining

Abstract

In today’s environment of digital transformation, industries deal with large volumes of data and uncertainties in data requirements. Companies shift towards shared resources to reduce costs associated with exponential data growth and data volume volatility. Cloud technology services (CTS) offer digital infrastructure and software that multiple businesses share. Companies adopt a rental model for their data storage and processing needs rather than investing in capital infrastructure. CTS companies try to scale operations without accruing large debt. This research explores the relative operating expenses and capital expenditures in the business model of companies that use CTS.  Our research analyzes annual reports for 25 CTS consumers across five sectors. We collected data from the footnotes and management’s comments within 10-Ks about operational expenses (opex) and capital expenditures (capex). Analysis of ratios in opex, capex and assets against revenues provides a comparative picture of growth in revenue to operational expenses and assets growth. What-if analysis illustrates potential additional income generated as a result of adopting CTS versus traditional infrastructure. Predictable expenses result from the rental model for data services, which leads to smoother earnings and a lower variance in management’s revenue projections. Our research indicates lower asset growth and higher opex growth for CTS companies.