OVH Groupe Reports Strong Core Profit but Lowers Sales Forecast

OVH Groupe, a French cloud services provider, reported better-than-expected core profit for the first half of the fiscal year, but lowered its 2024 sales target due to weaker demand in its main European market. The company's adjusted core profit margin expanded to 37.9% in the first half, up 2.5 percentage points from a year earlier, as it implemented cost-cutting measures and raised prices.

However, OVH slashed its organic revenue growth forecast to 9-10% from a previous forecast of 11-13%, citing a deterioration in the macroeconomic environment, particularly in France and Germany. CEO Michel Paulin said there is "an economic context with little visibility, particularly in Europe where customers are optimising their cloud resources." The company's public sector remained positive, but the private segment was weaker than expected, with customers buying fewer or only entry-level products.

Why this matters: OVH Groupe's mixed results underscore the challenges confronting cloud services providers as businesses tighten spending amid economic uncertainty. The company's ability to maintain profitability despite lower sales growth could serve as a model for other firms navigating the current market conditions.

Despite the lower sales outlook, OVH confirmed its medium-term targets. The company's adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew 18.3% to 184 million euros in the first half, beating analysts' expectations of 180.3 million euros. OVH shares fell sharply by over 14% on Tuesday, heading for their biggest daily drop, after the company revised its sales forecast.

OVH Groupe's first-half results demonstrate the company's resilience in the face of challenging market conditions. By implementing cost-cutting measures and raising prices, the French cloud services provider was able to expand its profit margins and deliver better-than-expected core earnings. However, the lowered sales forecast for 2024 reflects the ongoing economic uncertainty in Europe, particularly in key markets like France and Germany, where customers are optimizing their cloud resources and spending.

Key Takeaways

• OVH Groupe reported better-than-expected core profit but lowered 2024 sales target.
• Adjusted core profit margin expanded to 37.9% due to cost-cutting and price hikes.
• Organic revenue growth forecast cut to 9-10% from 11-13% due to economic uncertainty.
• OVH confirmed medium-term targets despite lower sales outlook, shares fell 14%.
• OVH's resilience in challenging conditions demonstrates model for cloud providers.