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LoopUp Group: can this cloud technology stock still compete in a tougher market?


Cloud technology provider LoopUp Group Plc (LON: LOOP), is doing pretty well, reflecting not only the success of its latest deals but also a broader trend in the cloud technology sector.

Shares in LOOP rose a massive 100% last week after the AIM-listed company, which provides cloud telephony for Microsoft Teams, announced a deal with Spanish telecoms firm Telefónica worth €200,000 (£169,000). The contract for an initial period of two years is for LoopUp’s Hybridium technology which will be used for a Madrid-based global innovation and talent hub.

The Telefonica deal is part of the company’s ambitious target to secure a total of 50 deals this year. So far it has managed to ink 44 deals worth close to £2.8 million.

How will LoopUp perform as pandemic recedes?

While the prospects for the company and the overall cloud technology market are generally very positive – it is a booming market that could nearly double in the space of only a few years – there are also some headwinds, as highlighted during the company’s earnings report earlier this year, including increased competition. LoopUp’s business consists of two main strands, cloud technology and the more traditional remote meeting technology, of which the latter is facing a decline as working practices are changing post Covid.

Despite the number of deals it had signed last year, LoopUp’s revenue and underlying earnings declined in 2021. During its full-year earnings update the company said that a longer than expected lag in converting bookings to revenue in its cloud telephony unit will continue to affect its bottom line this year.

The firm expects full-year revenues – still to be reported – to reach £19.5m, down from £50.2m in 2020, and underlying earnings to drop to £900,000, down from £15.3m a year ago. The technology provider ended the last fiscal year with gross cash of £5.5m, down from £12.1m, and net debt of £2.5m, up from £700,000.

Because of the long lag in converting bookings to revenue in LoopUp’s relatively new cloud telephony division and the continued expected pressure on its remote meetings business, the firm expects the revenue this year to be in the range between £15-16m.

Can smaller players still thrive in a market dominated by giants?

While the biggest players in cloud technology business Amazon, Google and Microsoft, continue to increase their market share year on year other companies in the same space are managing to grow their revenues but are also losing a small share of the market every year. In the small cap sector where LoopUp operates (LoopUp has a market cap of just over $10 million) the competition is becoming more fierce with over 200 new entrants in the last year.

Data from research group Synergy Research indicates that in 2021 companies spent 36% more on cloud technology infrastructure than in the previous year, with total spending during the last quarter of 2021 reaching more than $50 billion. The total value of spending on cloud infrastructure in 2021 was $178 billion.

The Software as a Service (SaaS) segment of cloud technology, and the segment in which LoopUp operates, expanded by 149% year on year between 2019 and 2020. But this is also a market that has been “discovered”, with several new entrants over the last few years.

While LoopUp’s prospects look very good over the coming year it also means that the company will have to keep on its toes to avoid losing momentum among increased competition.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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