French software firm OVHcloud bets on price hikes to offset power bills

The logo of French cloud computing company OVHcloud is seen on a data-center building in Strasbourg, France, October 13, 2021. REUTERS/Christian Hartmann

Oct 26 (Reuters) - French cloud services company OVHcloud (OVH.PA) on Wednesday forecast organic revenue growth between 14% and 16% next year, as its full-year sales grew despite rising electricity costs which the firm hopes to offset through price increases.

Soaring energy prices as a consequence of Russia's war in Ukraine have raised costs for cloud providers, which use electricity to power their energy-intensive servers. The rising bills have prompted many in the industry, including OVHcloud, to hike prices.

"Demand remains strong," Chief Executive Officer Michel Paulin told journalists in a call, pointing to the group's high client retention rate despite price hikes.

The company said in a statement it did not see any change in its customer behaviour.

OVHcloud shares were up around 7% by 0946 GMT, while J.P. Morgan in a note flagged the firm's net retention rate standing at 114% in the full-year 2022 ended in August, "up significantly" on last year.

Sales for the period stood at 788 million euros ($790.60 million), up 18.8% year-on-year, and beating the 781 million average forecast from a company provided consensus.

RISING ELECTRICITY BILLS

OVHcloud, which made its market debut in October 2021, warned however of rising power bills, forecasting that electricity costs in 2023 will account for around a mid-to-high-single digit percentage of its revenue, up from mid-single digit in 2022.

Early signs of weaker demand for its services had emerged this year, after a boost from remote work and the subsequent increase in use of cloud services during COVID-19 lockdowns.

In June, the company flagged flattening demand for some of its services, particularly from smaller customers like start-ups and cryptocurrency firms.

OVHcloud's larger software rival Microsoft Corp on Tuesday projected second-quarter revenue below Wall Street targets, reinforcing worries around rising inflation forcing businesses and consumers to pull back on spending.

Nonetheless, OVHcloud reiterated its 2025 target for sales growth accelerating to 25%, and profit margins near 42%.

($1 = 0.9967 euros)

Reporting by Olivier Sorgho; Editing by Jacqueline Wong, Josephine Mason and Mike Harrison

Our Standards: The Thomson Reuters Trust Principles.