On Pivotal's number of subscribers

Investment Analysis Clubs Saul’s Investing Discussions
21

How can anyone on here be so confident that they are attracting new, significant customers that are going to actually spend relevant

Epi:

In the context of what I posted…$50,000 X 300 equals just $15 million annual revenue despite the fact that the subscription revenue is growing by 69% to $90 million PER QUARTER.

How is that possible with customers locked into just $50,000 and staying there??

They simply must have massive upselling…no other way around it unless a few companies are spending gargantuan amounts to make up $340 million difference?? Not likely IMO.

That said, I do have some concerns about who their next customers will be and the buyer power I previously suggested.

22

They simply must have massive upselling…no other way around it unless a few companies are spending gargantuan amounts to make up $340 million difference?? Not likely IMO.

Duma,

Why on earth do you find that unlikely? I think it is highly likely.

Bear

1 Like
23

Duma,

Where did you come up with 300x50K?

50K is a low minimum cutoff, not an actual figure right?

that said, it seems weird to me that a company would not report on gads of small customers that they have in some way. Even if you don’t want to count the $$ spent by them, at least you would think they would report subscriber growth? Seems weird to hide that if it is true.

Gator

1 Like
24

Hey Gator:

They do report customer growth. The complaint by some, including me, has been that they are low numbers…this last quarter they added around 20 or so…so put them at 320 or so…one has to explain how they are making over $300 million more than that simple $50K per customer.

But again, that leads one to conclude that this $50,000 per customer definition is a purely contrived number since many of these costumers must be huge up sells…they can’t be just $50,000 each…the math doesn’t work otherwise.

Wish we could understand these customers better and therefore understand how/where they get many more.

1 Like
25

I would tend to agree with you, however just reading their own website and testimonials they post, they attract a lot of small startups. One of their “success stories” is HelloGbye, which has 5 employees and was using Pivotal’s office space as their own.

I came up with 40 customers they listed (very generally speaking) that were significant, established customers. I just don’t see how they are going to keep up this growth unless they grow that number.

To me, its very similar to the argument about Shopify and Shopify Plus. They have thousands of small customers, and the turnover is irrelevant to the bottom line. What matters are the ones who spend money.

I tend to give SHOP the benefit of the doubt because they have shown repeated amazing growth of revenue and customers over several quarters.

Pivotal is a very recent IPO. Until I see more history of them keeping this up, I have no reason to assume they are growing significant customers and not just $50K spend startups. I think a little caution is not a bad thing, especially with such a recent IPO.

5 Likes
26

I am not sure I really understand the point of this thread anymore. PVTL does not have a ton of customer. That is obvious. I am guessing they are working on it. Clearly, some companies-like Boeing, GE and Ford- love them. Are we to believe that Boeing swears by them, but HON and UTX will have no use for them. GE yes; but EMER, Siemens, 3M, no? IRS and Airforce yes; Army and Department of Labor, no? My guess is that it takes a little work to get some of these accounts to the big numbers. So, resources may not have been spent on customer quantity. I think the $50,000 doesn’t have a ton of meaning. Just my feeling.

Treepak

9 Likes
27

Makes me wonder, who many customers does Boeing have? More than 300? Where is their customer growth going to come from? Best to steer clear of an investment in Boeing.

Tinker

2 Likes
28

Good point Tinker.

I think that the customer acquisition curve maybe more of a function of the offering than some here realize (not Tinker). If you watch some of the YouTube case studies-even a couple of short ones like Allstate and Bluecross-they talk of journeys and mindsets and new ways of operating-I understand this partially is agile they are implementing, but hand in hand w Pivotal. I think we are dealing w much more profound offerings than we are use to from a SHOP or NTNX or even a MDB. The new customer adoption curve maybe slower. But, perhaps the penetration per client will be deeper and more profitable. People are going to spend if they are getting return in spades. The people I am listening to in these videos sound like believers.

Treepak

3 Likes
29

Tinker:

I think we are correct on the assesssment of customers and it is certainly NOT true as one poster said that wee cannot know the bell curve of the 320 customers.

Bottom line, PVTL’s own website tells us who their customer targets are…all blue chips from all industries (financial, auto, industrial, healthcare, communications, insurance)…big companies…really big Fortune 500 type and beyond…page 10.

https://investors.pivotal.io/events/presentations/default.as…

$50 Billion TAM ain’t coming fron small fries IMO.

From their S1, we also see, as I suggested:

We market and sell PCF and Labs through our sales force and ecosystem partners. We leverage our mutually beneficial commercial and go- to-market relationships with Dell Technologies and VMware, Inc. (“VMware”) to win new customers and to expand our customer footprint. We also work closely with large public cloud providers, including Google and Microsoft, to bring our customers’ workloads to their cloud infrastructure. We have received numerous industry awards, including in 2017 the Google Cloud Technology Partner of the Year for 2016 and an Azure consumption partner of the year award from Microsoft for 2016. We intend to continue to grow PCF and scale our strategic services by relying on global systems integrators (“SI”), such as Accenture and Cognizant

That being the case, VMware has 22,000 customers…if that’s any indication of where their customers could come from. NTNX has 9700 customers…more cloud based than on-prem compared to VMW.

In that same S1, they specifically state they are going after LARGE enterprises.

Hence, there does appear to be many large enterprise customers that are yet untapped. It also appears to me that the true value added for PVTL is more in the larger enterprise regardless and therefore I really doubt they are trying to attract the smaller company.

Bottom line…at only 320 customers…they have a very large runway indeed if the above is any indication…but that said, we better start seeing some serious ramp in customers…NTNX cloud based customers have ramped…why not PVTL?

4 Likes
30

Makes me wonder, who many customers does Boeing have? More than 300? Where is their customer growth going to come from? Best to steer clear of an investment in Boeing.

Not sure if you were just trying to be condescending or not, but at least Boeing is transparent about who their customers are and how much they spend.

If you actually care:

They list 187 customers on their website. MF also lists production and cost per month.

737 plane: monthly production 42: Average cost $103.4M backlog: 4,506
747 plane: monthly production .5: Average cost $387.2M backlog: n/a
767 plane: monthly production 2 Average cost $202.6M backlog: 106
777 plane: monthly production 7 Average cost $344.2M backlog: 124
787 plane: monthly production 12 Average cost $270.9M backlog: 679

But go ahead and compare them to a company that IPO’d 78 days ago who lets small customers use their company’s office space as their own.

I’m not saying PVTL can’t keep this up and are not legit. I’m just saying how can all of you have so much confidence when they have had literally one public quarterly report ever? I’m all for high growth, SaaS, recurring revenue, large TAM with moat…believe me. My portfolio is mostly SHOP, ANET, PSTG, and SQ. I’m up over 57% overall since 1/1/18. But everyone keeps brushing aside any concerns about who these customers are and if their reported growth is sustainable. I hope you are all right, but I’m just a little surprised at the confidence level in such a recent IPO.

Best of luck to all you, i’m following closely.

“We have no power over external things, and the good that ought to be the object of our earnest pursuit, is to be found only within ourselves.” - Epictetus

6 Likes
31

There are plenty of customers to obtain, that is not a problem. The way Pivotal works is they get paid by workload. The more a customer puts on the system, the move Pivotal makes. And if there is one thing we know, customers will always put more and more software on the system. One reason for the incredibly high ARR growth rate (not the only reason).

Nutanix is an easier sale I think, and I am not sure if the Pivotal is comparable. SAP would be a better comparator. And by the way SAP uses Cloud Foundry (one of Pivotal’s direct competitors on Cloud Foundry as is IBM). SAP uses cloud foundry to supplement offerings to existing SAP customers (and new ones I am sure) but SAP is not selling Cloud Foundry itself.

SAP has tens of thousands of customers, but it started out with just the big ones and kept expanding its market.

I read an article today about the British Government digitizing by use of Pivotal Cloud Foundry. They went through the process of how they selected Pivotal. There were two other competitive offerings. One was another open source and the other proprietary, they also looked at the Linux open source company (whats its name - Red Hat, yes…too much brain power spent trying to get my Vive up and working - dang it, only have 1 HDMI port, need a second mechanism to enable my computer monitor to work as well - this too shall be fixed - but I digress), but they decided on Pivotal Cloud Foundry in the end because:

(1) Pivotal features were more mature and more extensive (but it was close in regard)
(2) They found open source to be an advantage in that it created greater portability in ability to allow other departments to take one another department did and copy and modify and have it run in their department
(3) Pivotal had the largest infrastructure of partners, and users.

Using these criteria Pivotal was chosen despite the other two offerings they narrowed it down to having strong offerings and excellent customer service.

The U.S. Military and IRS are not the only government entities using Pivotal. Great Britain is as well. And part of the reason Pivotal was chosen was the ability to replicate across departments (i.e., built in ARR growth).

There is almost always some doubt with every single investment.

Nvidia: Will there be material ASICS by the cloud titans, will autonomous driving ever work, will Intel ever be competent at anything other than x86…well no on the latter, will crypto currency destroy gaming revenues…yada, yada. For the most part we are pretty comfortable with all the answers.

Mongo: Will NoSQL stay the dominant alternative database; will Mongo maintain its dominance in NoSQL or will someone come up from nowhere, and if not, will Mongo’s business model create enough ability to monetize.

You can do it for every company. SHOP, all those small drop shipping merchants…

Pivotal…is Pivotal a fluke, with very little addressable market? Will containers remove the need for a Cloud Foundry…I do not know, put some more in there.

But frankly, all of these possible concerns, none of them are possible for us to know. Not with SHOP (worried me enough as a thought experiment to move on but not others + valuation issues in the context of the small merchant issue), Nvidia (does not worry me in the least), Pivotal, history indicates it should not worry us either, but there is so little history, so we can be worried about that.

No certainty, but as I indicated before, I have never seen a company with such a pedigree of sponsors, ever. I am not well schooled in venture capital, so perhaps there have been better pedigreed companies from a venture capital basis, but literally Ford, GE, Microsoft, Google, and EMC/VMWare liked the product so much that they BOUGHT THE COMPANY with quite substantial investments. Ford has based its entire software development under the Pivotal Lab umbrella (hardly the only one).

So we shall see. Now to put off playing with the Vive until I can get to the Microcenter tomorrow and get some technical assist. Does pay to buy from a computer company with some people a bit smaller than Apple “Geniuses” at the bar.

Tinker
P.S. Of course I like to display my enthusiasms. Don’t take it as a do it yourself analytic, run your own analytics, to use the vernacular of Alteryx - the #3 ranked company in do it yourself analytics as rated by Forrester, but surprisingly still tied for #1 in customer satisfaction in the survey.

13 Likes
32

Large enterprises dont always move rapidly nor do they move large amounts of their environments to different processes all at once.

50k is probably more than the very lightweight trials by certain devops folks at large organizations but also just big enough to show that they have now seriously attempted deploying pivotal and material future expansion is now likely.

I wouldnt read too much into this. They could just count them all as clients but this method is more realistic and conservative, which i prefer from mgmt.

Dreamer

2 Likes
33

Epictetus
Tinker has addressed many of his names already in his last post. But, if you Youtube Pivotal Software or go to the website, there are plenty of customer case studies. Why do you say they are hiding their customers-Allstate, Bluecross, Humana, Boeing, US Airforce, IRS, EMC are just a few off the top of my head.

1 Like
34

I have actually been thinking about adding RHT to cover my bases. Also a good company. At the depths of the Great Recession market crash, I seriously considered putting my entire portfolio in SBUX, DNKN and MCD. I figured, people won’t stop drinking coffee. Luckily, I didn’t do it and instead, kept mostly cash. Glad I did. Saved me from becoming a multi millionaire.

4 Likes
35

it is certainly NOT true as one poster said that wee cannot know the bell curve of the 320 customers.

One thing it almost certainly is not is a bell curve.

If it is knowable, why don’t you share with us and end the speculation?

2 Likes
36

Hello,

You and Bear are to be congratulated for bringing an issue before us relative to the number of customers of size that Pivotal has, and can look forward to in the future.

I believe that you (both) are mistaken in your premise. You have pointed out that Pivotal is a new IPO and that we do not have a record to extrapolate from. I agree on that point. SteppenWulf has disclosed that one of the largest banks in the world has deployed Pivotal on 10 of the >1000 customer facing applications they have. He also states the likelihood of them getting all the rest on Pivotal. I am sure that you agree that should they do this, going from 1% to 100% of their customer-facing apps would be a growth driver for Pivotal. As they are one of the world’s largest banks, they may have many more customer-facing apps in the future.

He also states that there are many thousands of companies who need Pivotal who have not yet begun to deploy. I am sure that you agree that Boeing, Ford, and the other 38 disclosed “large” customers of Pivotal are representative of the type of customers that will be needed to drive the necessary revenue growth to support the current stock price. Why do you believe that more will not follow?

The disclosure of IRS and the Air Force as customers opens up a very large opportunity with the public sector.

I am happily with SW, Saul, and Tinker on this one. Talking my book here, PVTL has risen to 9% o my portfolio and will be added to.

Best regards,

Mike

8 Likes