https://seekingalpha.com/article/4181362-pivotal-software-br…
Rob
2 Likes
What I found interesting is that Gary argued that it might be hard for PVTL to hit its revenue growth target for the year:
“But if Q1 continues to be Pivotal Software’s best quarter as it was last year and the following quarters slip again below 20% growth, Pivotal may have trouble hitting the 27% y/y growth implied in its revenue guidance range for the year. It essentially needs to hold the 28% growth rate in the current quarter if it wants to hit that target. Unlike most software companies that guide conservatively for the year and allow themselves some room to decelerate in the back half of the year, Pivotal Software seems to have set an ambitious target which has some attainment risk.”
To me he misses what has been argued here on the board (let’s call it the Twilio situation): Bc of the high (+60%) and robust (+150% retention) subscription growth, this will become an ever higher percentage of the total revenue and, thus, push total revenue growth higher in the future. So exactly the opposite of what Gary said. Management like most software companies is guiding conservatively and we can expect further upside even in the short/mid term, although ultimately we all care about the long term. And there it looks even better to me… 
9 Likes
Rob, Gary Alexander thought it was too high back in April also, when it was $16. Said it was great but he would hold off buying and wait for a better price.
As I’ve said so many times. If you like the company and have conviction that the price will go up, buy the stock, even if it’s just a small position. Why wait for a stock to go down when you are convinced that the stock will go up. That’s why you are buying it, after all.
Saul
23 Likes
I like reading the articles on Seeking Alpha. They sometimes give cogent advice, and provide context. Often disagreeing with each other. The most often heard phrase is “richly” valued, but that is not unanimous.
Bert, for example, refused to buy ANET because it never came down to his price point over the course of more than a year. But we each to our own in regard.
The above all said, some pieces are garbage and put out with less information than any of us have here.
Gary Alexander knows nothing about Pivotal at all. It was painful reading through it. It is the second such article that was painful to read through this week.
Make sure to critically address what is being put forth. Even Bert, who is the best of the best in my opinion, is human, is pressed for time sometimes, and is not always at his best (although that is rare). Bert also did not understand Pivotal at the time he commented on it.
Seems like much of the market did not understand Pivotal. Seems like much of the market still does not understand Pivotal. I have seldom seen a multi-billion dollar corporation so thoroughly misunderstood (objectively) by those who normally do not misunderstand such things.
Well good for us then, not so much for them. But if they get around to actually understanding it, then good for us again. There are so many facets to Pivotal that are misunderstood. The three primary facets are (1) subscription vs. service, (2) customer concentration, and (3) annual recurring revenue growth at never before seen levels.
As to #3, this will come down. Not because of anything awful, but because Pivotal will be relying upon more and more third parties to sell and train and service persons on Pivotal Cloud Foundry. And when Pivotal Labs is involves the ARR growth is 1.5x greater than when Pivotal Labs is not involved. And most likely, most third party service organizations will not be as dedicated or competent.
As to #2, totally misunderstands the size of these deals, the size of service eventually needed, and how Pivotal transforms the entire software IT culture in these huge companies. Each win is a customer for life (for most of them) that will eventually pay more money moving legacy software onto Pivotal than even new apps they design. The economics here are something akin to what we saw with Microsoft of Oracle in their heydays. I don’t think most of the Street (although some analysts see it, as I have seen it inferred in a few reports) understands how desirable this economic model is for Pivotal.
As to #1, that is obvious.
Anyways, nice day.
Tinker
19 Likes
Gary Alexander knows nothing about Pivotal at all. It was painful reading through it. It is the second such article that was painful to read through this week.
I added Gary to my followed authors on Seeking Alpha (along with Mark Hibben and Bert…maybe Donn Bailey also, but he must not write much). My recent observation on Gary is that he is simply trying to crank out too many articles. As many different companies as he has been putting out articles on, there is no way he can closely follow them all sufficiently closely.
It is like your or Saul’s portfolio…there is only so much time that a person has in the day. Thus why I have done nothing yet for BITA besides seeing a snapshot of part of today’s price action for it and seeing that it does indeed have options available.
This line of thinking reminds me that I should probably try to work my way back down only about 15-16 holdings (including any larger or longer-term options positions). I sold off my Okta calls earlier today as it does seem to be amongst the absolute highest P/S ratios out there. Having recently added some PVTL and MDB calls, I think I’ll stick with keeping those 2 instead…likely exercising the PVTL calls to shares, maybe part/all of the MDB calls too.
volfan84
I would classify Gary Alexander’s analysis as:
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Give a cursory overview of the company and show a recent price trend chart
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Talk about the latest earning report and come up with a revenue growth rate going forward.
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Calculate the forward price to sales ratio or EV/sales ratio.
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If the ratio is above 7-8, call the company expensive and say there is no upside.
If the ratio is below 7, its a buy!
- Pump out as many articles as possible to make money on Seeking Alpha.
Jimbo
9 Likes
Gary does do a high volume of stock pieces, but whether his take on valuation is, in hindsight, correct or not is a bit irrelevant to me, as I like that he may discuss a stock I hadn’t heard of before and/or he may produce some stats/info on an existing stock I hadn’t seen before.
Just another useful data point for me. Plus he seems to like the tech space in roughly same fashion as me.
I never thought PVTL would bomb as a stock, I just liked some others better.
I was already on board the TTD train at the time, but Gary did promote TTD on Jan 18th 2018, and the stock has done pretty well since. Some winners, and some not so much.
Dreamer
2 Likes
Pump out as many articles as possible to make money on Seeking Alpha. Anybody able to make more money from writing SA articles than from buying and selling stocks is probably not somebody we should pay a lot of attention to.
Especially since we have so many smart guys here at Motley Fool, willing to share thoughts. Sharing ideas with your peers has been greatly enhanced by the internet. Years ago, before I saw it working even with things like whole operating systems, I would have said it was impossible. I was wrong.
Unlike Wall Street , mostly populated by MBA with much the same background and training and thus the same ideas , we get exposure to lots of people with different thought processes, many of whom were already successful in other fields.
11 Likes
I posted about Gary a few times, without calling him out by name - I think I was so disgusted, I didn’t really look at his name.
On the one hand, Gary posts about a lot of companies I’m interested in. If he posts about a company I don’t know, I’ll want to look at it, since it could be interesting.
On the other hand, for me, he represents the worst of what I see in analysts. He doesn’t understand his companies’ business models at all, and looks at them from a purely financial perspective. But on top of that, he writes his complete misunderstandings and misrepresentations of their business models as if they were true. Lots of people are going to believe things he says, that he wrote as if he was an authority, without bothering too really understand.
Now don’t get me wrong - it is perfectly ok that he reports on from a financial perspective - that is what he knows and he adds value there. But it is a sin to pretend to understand the business side of these companies when he is too lazy to understand them, but he writes about them anyway.
If I can compare him with Bert: Bert doesn’t always understand the technology of what he is writing about. But that is not so bad - I don’t understand all the details of the engineering of an internal combustion engine, but I still drive a car.
Bert does almost always have a very strong grasp of the business model of the businesses he writes about. He knows their markets, competitors, has a rough idea of what they need to do to succeed, and a very good idea of whether they are succeeding or not. He knows enough about the technology to usually understand its effect on the business model. I think Bert is a great analyst and Gary is horrible
15 Likes
Concur on Bert. Bert is very talented and seems quite passionate about his craft. He seems to have an issue with valuations that we do not all agree with, but the value Bert brings is breaking down the business and enabling us to understand it in much better detail from an investing perspective.
On that topic, something you mentioned in your second to last post on MDB, Mongo will continue to improve its product. Not only this, but I believe this is one of their sustainable advantages unless they are incompetent, and that is MDB is in a position where it can much more rapidly and thoroughly improve its product than any of its open source competitors in the NO world. The more time passes, the greater the gap between Mongo and the rest.
The same can be said of Pivotal with no real competition other than Red Hat and something disruptive that might come along that makes Pivotal redundant (not likely). Pivotal’s advantage will improve over time.
Nvidia is an ultimate example of this. You can barely even call AMD and Intel, not stupid or underfunded competitors, as competitive. The more time passes the more Nvidia’s competitive gap grows.
That may create accelerating returns overtime perhaps. MDB certainly has this advantage simply based upon the structure of its markets, the structure of its competitors, and by being by far the biggest, it gets even bigger, absent incompetence by management.
Does make for yet another hidden point in regard to the CAP of these companies. They keep getting relatively better than their peers the more time that passes.
Tinker
8 Likes