HDP - Guidance

Investment Analysis Clubs Saul’s Investing Discussions
#3

Incredible analysis, Saul. I’m continually in awe of your focus and clarity of thought. I had all the information I needed to put all this together, but until you did I had completely failed to see it this way. However, I will venture to add something on valuation.

As you said, this company has recognized 184M of revenue in the last year. At a market cap of 650M, that’s a PS ratio of roughly 3.5 – ABSURDLY low for a company growing this fast. However, that’s only the half of it, because as you pointed out, the actual billings this year were 270M. Comparing the market cap to that run rate yields a price-to-billings ratio of an even MORE ABSURDLY LOW 2.4.

I just feel the need to point out that this is the same world where SPLK and PAYC are growing possibly slower than HDP but have PS ratios over 9. Maybe another way to say what I’m trying to say is that HDP shares would have to almost triple to have a PS over 9.

Then there’s the profitability issue but the fact that they came through on their promise of EBITDA break-even is a strong signal in the right direction.

Wall Street is usually pretty smart, but this company does kind of defy traditional valuation. I think it’s severely undervalued and I’m loading up. I’ve also taken a small position in TLND, another company that works with HDP and which Bert has written about.

Bear

3 Likes
#4

Hadoop is amongst the fastest growing spaces in software and this is one of 3 companies that sell the tools necessary to install Hadoop at scale.

Really - only 3? How does one draw the boundaries to get the number this low?

#5

Hadoop is amongst the fastest growing spaces in software and this is one of 3 companies that sell the tools necessary to install Hadoop at scale.

Really - only 3? How does one draw the boundaries to get the number this low?

Overall, Hadoop is not overly complex. It is very simple but very good at what it does. I believe the 3 mentioned refer to Hortonworks (HDP), Cloudera, and MapR. Of course there are a couple other distributions, but probably not as widely adopted or as supported as the above 3.

http://www.networkworld.com/article/3024812/big-data-busines…

http://hadoopilluminated.com/hadoop_illuminated/Distribution…

2 Likes
#6

So, Amazon Web Services, Microsoft Azure, IBM, and Pivotal don’t count?

Ignoring the cloud-based alternatives is just silly in this day and age, don’t you think?

1 Like
#7

So, Amazon Web Services, Microsoft Azure, IBM, and Pivotal don’t count?

Ignoring the cloud-based alternatives is just silly in this day and age, don’t you think?

Not sure what you’re getting at. I was just trying to clarify a statement that wasn’t made by me.

Also, Hortonworks also runs on AWS and Microsoft Azure so their distribution is not necessarily just “on-premise”. I cite this just as an example to be clear that even though AWS has their own Hadoop offering (EMR), there’s no reason why you can’t run Hortonworks on AWS or Microsoft Azure which essentially is a cloud implementation of their distribution.

http://hortonworks.com/products/cloud/

2 Likes
#8

Not sure what you’re getting at.

Just that there are more than 3 players in the Hadoop space. The article you linked ignored 4 others - two of them because they weren’t on premise.

And while you can run Hortonworks on AWS, you can also run MapR’s distribution. Perhaps even easier is to run Amazon’s own distribution.

#9

Hi Smorgasbord1,

You can deploy Hortonwork’s Hadoop service within Azure and AWS. As a matter of fact, our company dumped IBM and decided to go with Azure and HDP. Azure and AWS are not direct competitors as HDP can work and are working with both cloud-based services.

All the best,
FG

3 Likes
#10

So, Amazon Web Services, Microsoft Azure, IBM, and Pivotal don’t count?

AWS, and Azure don’t count. IBM is a competitor for HDP and I don’t know about Pivotal.

#11

Of course AWS counts:
https://aws.amazon.com/emr/details/hadoop/

https://aws.amazon.com/emr/pricing/

With EMR you don’t need a third party provider like Hortonworks.

http://blogs.perficient.com/integrate/2016/05/19/two-choices…

1 Like
#12

With EMR you don’t need a third party provider like Hortonworks.

With Hortonworks it is pure-play open source. You can move at will and with EMR basically you are locked with Amazon, at least that’s my understanding. Also, EMR is few versions behind Hadoop, in an emerging field like Hadoop that is a severe limitation.

2 Likes
#13

With Hortonworks it is pure-play open source.

I don’t think that’s the primary driver for most companies.

Also, EMR is few versions behind Hadoop, in an emerging field like Hadoop that is a severe limitation.

Depends on how cutting edge your application is. Most companies stay behind on purpose for stability reasons. Like how many people don’t update their phone software right away - they wait a couple weeks to see if other people report issues.

Here’s a recent article on Hortonworks on Amazon: http://www.zdnet.com/article/hortonworks-comes-to-the-amazon…

Back to AWS, the obvious question is why use HDCloud instead of defaulting to EMR? Hortonworks is differentiating by optimizing for Hive and Spark workloads by leveraging a feature borrowed from Ambari that optimizes configuring compute nodes. Hortonworks is also promoting its ability to provide more granular security to Hive at row and column level.

EMR has long had the edge with its own proprietary data access optimizations. HDCloud is leveraging recent enhancements that came with Apache Hadoop 2.7 to get in the same ballpark with EMR performance against S3.

At any rate, I stand by my previous post that not counting AWS in is wrong.

#14

I don’t think that’s the primary driver for most companies.

Actually it is. I have seen that all the time. Remember Big Data is a very nascent field and the corporate buyers are worried about things like staying power of the providers, ability to quickly adopt leading edge, etc.

Often you see Big data and analytic goes together and this is employed on true differentiation initiatives like “Market research, customer research, product research” etc. That’s why companies go with “cloudera, hortonworks” vs IBM’s of the world. They are willing to go with small niche players rather than trusted big names. In such scenarios the small things like staying power, leading edge all matters.

Most companies stay behind on purpose for stability reasons.

That may be true for an ERP system or systems that are in place for a long time where the bias is stability and there is not a whole lot of reasons to be at leading edge.

At any rate, I stand by my previous post that not counting AWS in is wrong

Feel free. AWS can close the gap pretty quickly too. For now, AWS offers Hortonworks. The nature of the eco-system is such that they will co-operate and compete. I need to check out Gartner magic Quadrant to see where AWS is on this.

2 Likes
#15

I need to check out Gartner magic Quadrant to see where AWS is on this.

http://www.gartner.com/newsroom/id/3051717

You need a login to get more than the summary data, but that includes:

Only 26 percent of respondents claim to be either deploying, piloting or experimenting with Hadoop, while 11 percent plan to invest within 12 months and seven percent are planning investment in 24 months. Responses pointed to two interesting reasons for the lack of intent. First, several responded that Hadoop was simply not a priority. The second was that Hadoop was overkill for the problems the business faced, implying the opportunity costs of implementing Hadoop were too high relative to the expected benefit.

“With such large incidence of organizations with no plans or already on their Hadoop journey, future demand for Hadoop looks fairly anemic over at least the next 24 months. Moreover, the lack of near-term plans for Hadoop adoption suggest that, despite continuing enthusiasm for the big data phenomenon, demand for Hadoop specifically is not accelerating,” said Merv Adrian, research vice president at Gartner. “The best hope for revenue growth for providers would appear to be in moving to larger deployments within their existing customer base.”

1 Like
#16

Only 26 percent of respondents claim to be either deploying, piloting or experimenting with Hadoop, while 11 percent plan to invest within 12 months and seven percent are planning investment in 24 months. Responses pointed to two interesting reasons for the lack of intent. First, several responded that Hadoop was simply not a priority. The second was that Hadoop was overkill for the problems the business faced, implying the opportunity costs of implementing Hadoop were too high relative to the expected benefit.

Those numbers seem meaningless without context…if last year 5% of respondents were planning deploy Hadoop, 26% this year would be massive growth.

Bear

#17

Only 26 percent of respondents claim to be either deploying, piloting or experimenting with Hadoop, while 11 percent plan to invest within 12 months and seven percent are planning investment in 24 months. Responses pointed to two interesting reasons for the lack of intent. First, several responded that Hadoop was simply not a priority. The second was that Hadoop was overkill for the problems the business faced, implying the opportunity costs of implementing Hadoop were too high relative to the expected benefit.

Could you find out who were the respondents? If the sample was representative of the overall economy, then I would say 26% is phenomenal, as big data is still a very small part of the overall business activities.

It is also important to know who the respondents were. If they were CIOs, then I am sure that Hadoop would not be on the top of their agenda since only a small part of business depends on such architecture, unless you live and die by big data, like credit bureaus, Google, Amazon, etc. However, ask any leaders that head a data-driven group and I am sure the percentage of people who says that they are converting to or are already using Hadoop would be way above 26%, if not 100%. This is in no way indicative of Hortonwork’s prospects, but Hadoops is a niche. It is a niche for a specific type of field. And the field is a very specialized one that require people to have certain requisite training, knowledge, education, and interest.

Just my 2 cents,
FG

1 Like
#18

Only 26 percent of respondents claim to be either deploying, piloting or experimenting with Hadoop, while 11 percent plan to invest within 12 months and seven percent are planning investment in 24 months.

Hi Smorgasbord, Just curious. How do you reconcile that with HDP’s revenue being up 51% for the year, and billings being up 63%?

#19

The report is old and our internal (my employer) projections are showing at least 65% of our big accounts are planning to deploy Big Data/ Analytics/ Digital.

#20

AWS, and Azure don’t count.

Sorry to keep harping on this, but it appears that Microsoft’s own Azure’s HDInsight offering (https://azure.microsoft.com/en-us/services/hdinsight/) was actually developed by Hortonworks with Microsoft and that Hortonworks gets a fee per usage hour from Microsoft.

If you read the earnings transcript, you would have seen this from CEO Rob Bearden: “We have an arrangement with Microsoft, we’re based on usage we get paid per usage hour and we can’t disclose that contractually.”

3 Likes
#21

How do you reconcile that with HDP’s revenue being up 51% for the year, and billings being up 63%?

I don’t get the desire for reconciliation here. Just because most organizations are not considering Hadoop at this time doesn’t rule out that more are doing so than have before. A perhaps silly argument might be that if 17% of orgs were using HDP last year, then a 51% increase might mean that 26% are doing so today. The reality is that Gartner was looking at the overall market trend, not a particular company in that space, so there’s no way any of those numbers are real. I suppose you could try a spin it that Hortonworks is doing better than the Hadoop market as a whole, but I wouldn’t try to support or deny that claim based on what we’ve read so far.

This article, Hadoop Finds A Happier Home In The Cloud, just came out earlier today: http://www.infoworld.com/article/3170127/analytics/hadoop-fi…

Not only did 2016 see only a small increase in Hadoop deployments, but the pipeline leading into deployment fell across the board. … In sum, big data has yielded big hype, but not yet big success.

Well, that’s not quite true. Hortonworks, for example, recently had a strong quarter, growing revenue 39 percent year over year. In 2016, the company did nearly $200 million in revenue, $126 million of it derived from subscriptions to its Hadoop platform.

Part of this success for Hortonworks, however, probably comes down to its increasing embrace of the cloud. As noted on its earnings call, roughly 25 percent of Hortonworks customers now run its software in the public cloud, up from approximately 0 percent two years ago. This is where developers want to run their software, and appeasing them is smart business.

While this shift to the cloud likely favors Amazon Web Services and Microsoft Azure far more than it helps Hortonworks, Cloudera, or MapR, it’s a rising tide that will tend to lift all boats. It also may save them from leaking.

1 Like
#22

They have similar arrangement with AWS. In fact HDP announced today an alliance with IBM storage division. Like I said, the ecosystem is such that you are going to see companies compete and co-operate.