Growth warning: Cloudera

Software firm Cloudera, which does data management, machine learning, and analytics software for businesses in the cloud reported earnings. Stock has been on a tear recently.

They grew topline at 40% and beat St estimates.

They beat EPS by a wide amount, narrowing losses as well. -10c vs -23c estimated.

They reiterated EPS estimates for 2019, and Q1 revenue estimates. Their revenue from their largest customers is growing at 136%.

All sounds good, right?

BUT, they took down the topline numbers for 2019. To $435-455m from $460m Wall St estimates [not much of a drop, is it?]

Result: Down 40%!

Stock still trades at over 9x Sales, so was trading at 15+ times sales yesterday.

This is what happens when growth firms lower their growth rates from very strong to strong. It happens to most high-growth firms, unless they start minting cash as the growth slows that Quarter.

It will probably happen to almost every software firm discussed on this board that has no profits and high P/S numbers – to be specific, a massive short-term drop in one day.

Of course, such companies may continue to execute and pivot and improve and be great long-term investments. But the volatility can be bone-jarring.

CLDR went from a +36% YTD winner to down 22% in a heartbeat.

Be aware of the risks of investing in these types of firms – and more importantly, have a strategy in place now to deal with the eventual downturn whether stock specific as above, or bear market-oriented.