Cloudera reported yesterday, stock is down 40% as I write this. How can they be down 40% when they posted what is essentially a great quarter?
Revenue increased by 41% yoy,
subscription revenue up 50% yoy.
Net expansion rate 136%.
Gross margin 73% up for 69%
Their earnings call was a mess for one. In the prepared statements they tried to gloss over the fact that their revenue growth was going to decrease to 20%. Hidden in there they mention new leadership for sales and marketing, and then made a big hullabaloo about the next version of cloudera. They also focused on the fact they are going to moving away from land and expand and focus on their core customers.
Some questions I had below with my answers
How does a company with a net expansion rate of 136% only forcast revenue growth of 20%?
Buried in the analyst questions they drop the bomeshell that the 136% net expansion rate is only for their largest customers. WHAT? So basically they have been cherry picking the very best cohort to calculate NER on and reporting that information.
Why are they switching strategies?
Again in the analyst section they mention that their smaller customers have higher churn which in SaaS speak means their customer acquisition cost is too high and they aren’t getting enough revenue out of those customers. This is the case of selling something for a loss, then trying to sell as many of them as possible to make up that loss….you just lose more money. This HUGE bombshell basically means that they have been chasing customers, padding their revenue and customer counts but can’t do it anymore because they promised to be cash flow positive by 2020 and they won’t be able to do that with the cruddy growth they have been pursuing.
How can their growth be so low if they really have a such a huge TAM. (70+ billion estimated by cloudera)?
You guys may remember I didn’t believe Hortonworks TAM numbers and this really cements my opinion. Cloudera is saying they can’t make money on all but a few of the largest companies so in reality their TAM is much much smaller. So far hortonworks seems to be in a different boat.
Personally I find all of clouderas numbers to be suspect at this point. Cloudera finally had to pay the piper because they couldn’t hide their losses anymore and still reach some sort of reasonable cash flow by 2020 as they had promised. So what does this mean for hortonworks? HDPs cash flow is already better than clouderas. I’ll need to do some digging but HDP must not spend as much to acquire a customer hence needs less revenue to turn an operating profit on the company. HDP must also be more disciplined about which customers they are targeting so not wasting (again in the analyst section of clouderas call) their time on the really small customers. I’ll be very interested to see HDPs next year because if they aren’t lying then they have a dramatically better business than cloudera.
Long story short. Previous thesis, “huge TAM, huge tailwinds, huge growth ahead”. New thesis, “marginal growth, cash flow improvement in 2 years, no earning in sight, suspect management, PR department has been doing financial statements”