On the heels of my recent post “What Are Kerchunker Companies? 5 Reasons Why You Should Like Them,” please watch this recent CNBC interview of Mike Smerklo, Chairman and CEO of ServiceSource. Many high tech companies are realizing what IBM did 20 years ago. The information technology industry can rapidly become commoditized so IBM determined that the company needed to shift its portfolio to a more balanced mix of high-value offerings. That meant a transition away from products (hardware) and growing its services and software businesses. Today, the cloud is enabling companies to offer Software as a Service (SaaS) which often boasts better customer retention and more recurring revenue.
If Companies Like It, Your Portfolio Should Too
While many investors continue to speculate about the next game changing product or in commodities like precious metals or oil, we prefer the stable earnings growth of service sector companies. The beauty is that the positive characteristics of recurring revenue models cuts across sectors and industries – video rental memberships, gym memberships, cloud services, outsourced laundry service.
Many companies are motivated to make the shift to recurring revenue models, and Runnymede believes that investors can benefit by making a similar shift in their investment portfolios.