…pertaining to securing IoT devices from hackers.
http://investors.hortonworks.com/phoenix.zhtml?c=253804&…
A.J.
3 Likes
Caveat - I’ve not closely looked at this company, so I’m shooting from the lip here to some extent . . .
HDP is what is known in the IT industry as middle-ware. It does not directly interface with an end-user. It does not directly perform or support a business function (accounting, HR, mfg, etc). It is hidden in the bowels of the IT environment in order to facilitate these, but it performs none of them.
I retired as an enterprise architect. In other words, I’m the kind of guy who would advocate for procurement and present to management why they should spend money on it.
I worked in aerospace firm. The management was focused and knowledgeable primarily about large objects that fly. Not IT and computing matters. From my interaction with folks across many industries, the more physical the product (mining, refining, engineering, manufacturing, etc.) the less friendly the management is with regard to spending money on middleware. They inevitably see it as just another IT cost (BTW, IT is a cost center rather than a profit center) with dubious benefit.
I’m very cautious about buying these types of companies because in my experience they are a very hard sell to a lot of management.
I have no position in HDP. No plan to initiated one.
2 Likes
Another piece of news from HDP today.
http://seekingalpha.com/pr/16713112-hortonworks-appoints-raj…
A.J.
They inevitably see it as just another IT cost (BTW, IT is a cost center rather than a profit center) with dubious benefit.
Interesting thoughts, BR. From a valuation side, this one continues to elude me as well. Their revenue last quarter was 47.5M. They spent 66M on SG&A and another 26M on R&D. Their net loss was actually more than their Revenue! I’m not looking for profitability per se, but this just seems like taking a flame thrower to a pile of cash. I’m looking forward to their next quarter results, but they have so far to go. Saul, I know you took a position already: how do you get around these issues?
Bear
1 Like
I think it is also important to remember that HDP does not own the product on which their business depends … it is open source. Red Hat has shown us that not only can one build a support business on that basis, but even create a branded version of the product. But, Red Hat is not a typical story.
Hi Bear, they have an enormous amount of deferred revenue ($155 million at present). Here’s a little quote from Bert which helps explain it:
Last quarter saw revenues plus the net change in deferred revenues of $71 million, with adj expenses of $88 million and depreciation of $2 million. Thus, the calculated adj EBITDA was a negative $15 million, an improvement of $14 million from the June period.
The company firmly predicted another $15 million improvement this quarter, reaching EBITDA breakeven.
I hope that helps. To really understand it all, read bert’s article.
Saul
1 Like
Saul, I know you took a position already: how do you get around these issues?
Not pretending to be Saul here, but I took a very small position after Saul and after reading Bert’s article from 11/7/16.
From Bert’s article on HDP:
The company is projecting that in the December quarter it will achieve revenue plus the net change in deferred revenues of $81 million with non-GAAP expenses of $83 million and depreciation which is included in the non-GAAP expense bucket of $2 million. That is adjusted EBITDA, as this company calculates that metric, of break-even. That would be an improvement of $15 million from the prior period.
Rob Bearden, the CEO of HDP, put a stick in the ground that the company will report positive operating cash flow by the middle of 2017. The comment was amplified in response to a question by Scott Davidson, the company CFO. Reaching operating cash flow (CFFO) break-even will be both a milestone for the company and a significant driver for share valuation.
So, it appears HDP may be starting to turn the corner to profitability.
In their recent conference call, you can see where operating leverage is kicking in with expenses rising in the low 30s and revenue closer to 60% with increasing margins due to increasing subscription revenues.
Bert predicts non-GAAP profitability late '17/early '18 FWIW.
The TAM thrown around by the company and others is absolutely gargantuan. A small position here is an attempt to continue to follow the company closely and try to get ahead of the curve. I anticipate an incredibly rocky road with HDP. The company and space is very intriguing.
I’d be interested to hear what others think.
Take care,
A.J.
1 Like
I think the comparison with Red Hat is an interesting one here. When Red Hat got started, Linux was just starting a burst of respectability as an alternative operating system. Before them, Linux support and implementation expertise was mostly a thing of chat groups and small companies. Linux flavors abounded confusingly. And, there was no real obvious competitor to Linux as a low cost, yet enterprise strength operating system. So, Red Hat could step into that space, provide high quality, predictable support, branded, supported versions of the software with a reliable and predictable update path and it isn’t surprising that they were appealing to a lot of enterprises that were open to an alternative. Linux has become successful enough that there is room now for more than one distro and for companies being willing to commit to more internal support, but Red Hat was there at the transition.
Hadoop also offers an alternative to a difficult problem and has certainly grown dramatically in use. The broad need is there with the mushrooming of data. But, I think there are some big contrasts to the Linux case. First, it is not the only alternative. It may be the relative big boy at this point, but we aren’t talking about deep penetration at this stage. So, it could be that Hadoop will keep growing and displace alternatives, but it also could be that one of the alternatives will end up the winner. One of the things complicating this is that there are a lot of challenges integrating Hadoop into the rest of the computing solution in a company. Merely stuffing a bunch of data into Hadoop doesn’t tell you how to integrate that with the CRM or accounting or marketing systems, for example. In fact, even just analysis can be challenging since all of the established business analysis tools are SQL oriented. I have mentioned Data Direct Cloud in this context before as a solution that makes non-SQL sources available to SQL tools … but that belongs to Progress, not HDP or some other company.
HDP is what is known in the IT industry as middle-ware.
Hortonwork products are not middleware products. This statement is incorrect.
BTW, IT is a cost center rather than a profit center) with dubious benefit
Very ignorant statement. Today’s digital economy IT is a differentiation.
I’m very cautious about buying these types of companies because in my experience they are a very hard sell to a lot of management.
Again just not true. Modern CEO’s clearly understand IT, digital. I routinely talk to “C” suite, I am amazed how knowledgeable they are.
Hi Bear, they have an enormous amount of deferred revenue ($155 million at present)
What is great about deferred revenue? It is often revenue recognized after the cash is collected. I would think of it this way, if they do not take another order, they probably will have $155 million in revenue coming in but 0 cash
A.J.
I took a small position too.
Now it’s wait and see.
Best,
Frank
What is great about deferred revenue? It is often revenue recognized after the cash is collected.
Hi jdc,
That doesn’t make any sense to me. What’s great about the deferred revenue is that they’ve taken in a lot more revenue than is showing on the revenue line.
I would think of it this way, if they do not take another order, they probably will have $155 million in revenue coming in but 0 cash.
I would think of it this way, if an ordinary company doesn’t take in another order, they will have $0 million in revenue coming in. They won’t have that $155 million in revenue coming in… duh!
Saul
1 Like
HDP is what is known in the IT industry as middle-ware. It does not directly interface with an end-user. It does not directly perform or support a business function (accounting, HR, mfg, etc). It is hidden in the bowels of the IT environment in order to facilitate these, but it performs none of them. [Management] inevitably sees it as just another IT cost (BTW, IT is a cost center rather than a profit center) with dubious benefit.
Hi Brittlerock, I also don’t know anything about the technology of hadoop, or what it is, or how it works, or what it means, or even how to spell it. But analysts calculate that hadoop does have a CAGR of 50% to 60%. So HDP doesn’t have to outdo anyone. If it does a basic good job, it ought to be able to grow revenue 50% to 60% for the next 5 yrs or so. And maybe, if it does an exceptional job it can grow even faster (74% for the trailing 12 months). But I’ll be happy with 50%. But CAGR’s are just calculated, and analysts can be wrong.
And analysts also predict that 100% of major enterprises will adopt hadoop (not that they will all buy it from HDP, but that they will all buy hadoop). Analysts could be wrong about that also, but 100% is a pretty big number.
Best,
Saul
1 Like
I can make a few comments on Hadoop. I am a Hadoop user. I routinely access data on Hadoop cluster for statistical modelling.
To put simply, Hadoop is a data dumping ground in a distributed computing system. It’s cheap, it’s great for storing data, and it allows you to run applications on clusters of commodity hardware.
What is Hadoop good for? It’s good for “big data” and “machine learning.” Because Hadoop is a cheap data dumping ground and puts no constraints on the data format, you can store all kinds of data you wanted. In a world where businesses are collecting endless amount of data about customers and goods, Hadoop serves as an easy solution.
Better still is that many open source software can be used when working on Hadoop clusters, such as Hive or Pig (among many, many others and most are open source).
One comment earlier states that HDP is seen as just another IT cost with dubious benefit. Yes and no. It has a cost and the benefit depends on what you can do with your data. Businesses that live and die by real-time data, like Netflix and Amazon, can realize lots of benefits by going with Hadoop.
I don’t know about HDP’s business models or revenue streams (and big thanks to Saul for his analyses). I am just an average employee who uses Hadoop. What I have just said above is just a simple and overly generalized picture of Hadoop based on my understanding. I am basically just parroting what IT folks have told me when our company decided to go with Hadoop.
Finally, it is true that you don’t need HDP when you go with Hadoop. But one knowledgeable person has told me that HDP provides better support and is easier to work with than others, such as, say, IBM. We have actually just dumped IBM Infosights for Hortonworks, so there is that.
Hope this helps,
FG
27 Likes
We have actually just dumped IBM Infosights for Hortonworks, so there is that.
FoolsGrad,
I want to say thanks a bunch. I think most of us are still pretty clueless about what Hadoop does and I certainly haven’t heard of anyone who uses it…so thanks.
You answered my question at the very end. You mentioned using Hadoop and I was wondering if you were simply utilizing the code yourself or were working with another vendor. It sounds like IBM was your vendor and HDP is replacing them.
Please let us know your thoughts on HDP versus IBM once you’ve had some time to determine the differences. I think that would be a great follow up here.
Thanks again,
A.J.
1 Like
I wanted to add one more thought here.
As of a couple of quarters ago, there seems to have been some sales force problems at HDP prompting the COO to resign/be fired.
I’ve read HDP may have had some issues with their legacy sales force as well - Longer tenured sales personnel who may not work hard enough and get paid too much.
http://seekingalpha.com/pr/16713112-hortonworks-appoints-raj……
Enter the new CEO - Raj Verma. For those that are on LinkedIn, check out his resume. It appears pretty impressive and is highly focused on running tech sales organizations. Let’s hope Raj can repeat what he has done in the past. It appears Raj has been successful everywhere he’s been in leading sales personnel. He seems to be a very good fit at this point in HDP’s existence. Only time will tell.
Take care,
A.J.
1 Like
Hi Fools Grad,
Thanks for a VERY useful post, and welcome to the board. We hope you will keep posting from time to time.
Saul
One more thought: An earlier poster mentioned that Hadoop posts a challenge to many existing business practices because it does not work well with SQL. That is true for many years, but it has all changed in the past few years. First, the influx of “data scientists” means that more and more people can, and prefer to work with various languages. Second, MapReduce allows Hadoop to be queried via SQL. There are lots of exciting developments called SQL-on-Hadoop that solves most of the SQL problems.
Hortonworks has a project called Stringer, it now provides solutions to businesses who queries Hadoop via SQL.
My basic feeling on this issue is that if companies still need SQL and depend on SQL, then it won’t really adopt Hadoop. Companies that are adopting Hadoop will have enough folks who can circumvent the SQL problems and work within the confines of Hadoop without issues. Yes, integration issues persist but Hadoop doesn’t have to be the only solution within the enterprise. It can be scaled up or down easily with little cost or effort.
Just my two cents.
FG
5 Likes
Hortonwork products are not middleware products. This statement is incorrect.
Guilty as charged. My bad.
Very ignorant statement. Today’s digital economy IT is a differentiation.
I stand by my comment. I don’t know if you have experience in a Fortune 50 company which is in a heavy industry, but if so, I think you would agree with me. I did not want to go into a bunch of qualifications, but now I feel as though I need to defend myself. Let’s start by defining IT, just so we’re on the same page. When I use the term IT I am talking about the people, s/w and h/w that support the operations of an enterprise. Specifically, I am not talking about products that are sold to customers, nor am I talking about computing support for h/w and s/w embedded in end-item products. I retired in 2010, but I doubt this has changed much.
Management is generally open to CRM, ERP, PDM, HRM, SCM, etc. type applications when the functional organization that is the prime internal user of the package stands up and says this will cut costs and shows the appropriate financials to back up the claim (but I’ve seen push-back here too). But when IT says they need new s/w and/or h/w, management is far more prone to see additional costs rather than the elusive cost-savings. This is industry dependent. If you’re in the financial industry, what CM001 said is true. What’s their “product”? It is data, and a relatively small amount of actual cash. A loan is data. An accounts is data. Etc. But if you’re in a heavy industry, IT is a cost and IT support s/w (like middleware) is seen as additional cost. All those enterprise software packages I mentioned above used to built in house by IT. Now, they’re all purchased from outside vendors. IT organizations have become a lot smaller because of it.
Again absolutely true, but industry dependent as I originally noted. Those C suite guys aren’t as savvy as you might think.
2 Likes
Saul,
So I got it wrong (remember my caveat - shot from the lip). Someone in this thread made a reference to Red Hat which was probably not far off the mark with respect to business model.
When it comes to Hadoop as a technology, I at least know what it is. Without a lot of techno-speak it is a data manager. Traditional relational databases are not very good at managing “unstructured data” which is the erroneous term used to refer to stuff like this message, email, click-stream, sound, photo and video files, etc. Of course the data of these files are highly structured, but they are not like a business form like a purchase order or shipping invoice, etc. Generally, we’re talking about very large files that are all structured per the same rules, but they are also all unique. If they lack sufficient metadata (which is a structured, fill out a form data) about the file, it’s hard to look inside and infer exactly what the subject is. And, with the explosion of data
Hadoop (and Mondo and a bunch of other data managers) are competing for market share to address these extremely large databases made up of these “unstructured” files. Thinks of it this way, let’s say you’ve got a sales campaign going on where you’re trying to get a customer to buy several of your multi-million dollar products. These types of sales are very complicated and may involve hundreds of sales folks, product engineers, financial folks, product support people and so forth. They are all interacting with different parts of the customer organization with emails, phone calls, presentations, meetings, etc. Somehow, you want to keep track of all these interactions. And because they are many and disparate, analysis is difficult and simply not possible with a relational database like Oracle. Enter Hadoop and others.
So, analysts say such and such about Hadoop, but this is really an infant technology and nobody can tell you who the winners are. None of these data managers will grow in a predictable manner. Or, at least that’s the way I see it from my 30 years in the business.
I’m not long HDP and don’t plan to be. I’m the last person to tell you how to invest or what to invest in. You are far more responsive than I am. You pick up on signs in the filings and conference calls that I don’t notice. I, personally don’t feel comfortable with this one.
1 Like