Pivotal, a moderately deep dive!

It’s why I’m curious to hear completely different opinions from internet strangers. This guy I was talking to told me today “CloudFoundry is dead” and “everything is Kubernetes going forward”. Steppenwulf says “Containers were very hot 2-3 years ago, but from my end, I see a lot fewer engagements using them over the last year or so”. Which is true? To some extent, I suspect both. Lots of enterprises probably have both technologies. In some verticals and customers one is doing a lot better than the other. Only time will tell us the ultimate winner.

–CH,

Predicting the future is hard.

The Amiga was awesome.
CPM had the installed base of software.
Iomega had the best storage solution.
Gateway was better thsn Dell.

Most of the time it comes down to the balance sheet and the business acumen of the executive team.

Ideas are easy, technology is difficult, business execution is rare.

Ask Mr. Musk.

Cheers
Qazulight

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So I know I’m late to the discussion, but I have thoroughly enjoyed the deep dive into Pivotal, and the way this board can analyze a company.

My main question I haven’t seen anyone address is this:

The company is worth $5B. $509M in revenue last year. And all of this with 319 customers?

That would imply at best, $1.5M spend per customer each year if all customers were the same. However, I suspect that most of the 319 customers are not spending anywhere near $1.5M on pivotal. They even promote this on their own website here: https://pivotal.io/hellogbye

HelloGbye is a startup based around a travel app. They have 5 employees. They used Pivotal’s office space as their own. Does anyone think they are spending $1.5M on the pivotal product? They even promote here how affordable their service is: https://run.pivotal.io/pricing/

Sure, they boast “7 of the largest banks, 9 of the largest automakers, 7 of the largest insurers, 8 of the largest retailers, and 9 of the largest Telcos” work with them. But that all combined is 40 customers. How much of that $509M in revenue came from those 40 customers? And last year they averaged 11 new customers per quarter. I know we have been over that, but how many of those 45 new customers are startups like HelloGbye that will never reach the level of Citibank or Liberty Mutual?

One of the reasons I invested in INST was because through this board we found fine print details about their pricing and how much each customer was spending on their service. That investment has been one of the best I have owned the last 8 months. Is there any clarity anywhere on how much the average customer spends with Pivotal, and how much is concentrated in the large customers? And how much they are actually growing customers that are significant to the bottom line and not just startup dreams?

The growth in subscription revenue looks very intriguing, I agree. But if they already had those 40 huge customers, and then they changed their entire business to SaaS-based, it would make total sense for those numbers to grow, they already have large enterprises to spend the money! I’m curiso

7 Likes

So I know I’m late to the discussion, but I have thoroughly enjoyed the deep dive into Pivotal, and the way this board can analyze a company.

My main question I haven’t seen anyone address is this:

The company is worth $5B. $509M in revenue last year. And all of this with 319 customers?

That would imply at best, $1.5M spend per customer each year if all customers were the same. However, I suspect that most of the 319 customers are not spending anywhere near $1.5M on pivotal. They even promote this on their own website here: https://pivotal.io/hellogbye

HelloGbye is a startup based around a travel app. They have 5 employees. They used Pivotal’s office space as their own. Does anyone think they are spending $1.5M on the pivotal product? They even promote here how affordable their service is: https://run.pivotal.io/pricing/

Sure, they boast “7 of the largest banks, 9 of the largest automakers, 7 of the largest insurers, 8 of the largest retailers, and 9 of the largest Telcos” work with them. But that all combined is 40 customers. How much of that $509M in revenue came from those 40 customers? And last year they averaged 11 new customers per quarter. I know we have been over that, but how many of those 45 new customers are startups like HelloGbye that will never reach the level of Citibank or Liberty Mutual?

One of the reasons I invested in INST was because through this board we found fine print details about their pricing and how much each customer was spending on their service. That investment has been one of the best I have owned the last 8 months. Is there any clarity anywhere on how much the average customer spends with Pivotal, and how much is concentrated in the large customers? And how much they are actually growing customers that are significant to the bottom line and not just startup dreams?

The growth in subscription revenue looks very intriguing, I agree. But if they already had those 40 huge customers, and then they changed their entire business to SaaS-based, it would make total sense for those numbers to grow, they already have large enterprises to spend the money! I’m curious how much they are actually growing customers that add the same value as Citi or LM.

Thanks for the discussion. I’m happy to follow along.

15 Likes

And I apologize for the double post…my 11 month old baby girl thought it was funny to sneak up on my computer and hit submit before i was ready :slight_smile:

the 319 customers are subscription customers. They have ~260 million of subscription revenue and ~250 million of service revenue. 810K average per customer for subscription revenue. I’m not sure how many service customers they have.

best,
Ethan

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Sure, they boast “7 of the largest banks, 9 of the largest automakers, 7 of the largest insurers, 8 of the largest retailers, and 9 of the largest Telcos” work with them. But that all combined is 40 customers.

I think Epictetus makes a very important point. That 158% (which as Bert aptly notes is a large part of the investing thesis) means that the companies that are customers are drastically ramping up their usage. Especially the large companies. Great news of course…but is this also a threat? Once these 40 or so large companies have ramped, and are subscribed to all the services Pivotal can reasonably provide them, that 158% could drop pretty quick. Hard to know how far along the big companies are, but we know they didn’t bring a ton of new ones on recently to take the place of the ones who may have already ramped.

If adding new customers turns out to be difficult, as we’ve seen with some other SaaS companies, revenue growth rate could fall precipitously.

SteppenWulf, do you work for a large organization? Have you seen increased adoption of Pivotal by your company each year, and do you think it will continue to increase? For how long? Do you think smaller organizations would have a need to use Pivotal to the extent your company does?

Bear
proceeding cautiously, though I did buy a few June call options

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I think Epictetus makes a very important point. That 158% (which as Bert aptly notes is a large part of the investing thesis) means that the companies that are customers are drastically ramping up their usage. Especially the large companies. Great news of course…but is this also a threat? Once these 40 or so large companies have ramped, and are subscribed to all the services Pivotal can reasonably provide them, that 158% could drop pretty quick…

SteppenWulf, do you work for a large organization? Have you seen increased adoption of Pivotal by your company each year, and do you think it will continue to increase?

Hey Bear,

I’ve spent about half my time in startups and the other half in the Fortune 500 - currently I’m responsible for the Innovation Lab and cloud migration in one the largest banks in the world, and previous to this, helped another very large US Bank make the transition to the cloud. My view is slanted toward the financial market - although I’ve worked in telecom, automotive, software, and entertainment industries, also, that was before the cloud was big.

From my point of view, we are in the early days of the transition of enterprise clients to the cloud. The vast majority of enterprises have started to realize that there are big cost savings and agility benefits to getting on the cloud, but have just started putting their toes in the water. They all have their own security groups that have to get comfortable, and their processes and tools groups who have to adapt to a completely new way of doing business. Not to mention the long term budget reductions in the infrastructure group which are being resisted by those groups.

This is Pivotal’s market - easing entrenched IT groups’ concerns and simplifying their move to the cloud in a vendor neutral way. I think we have two hypergrowth trends occuring at once. Existing clients moving from proof of concept to wider adoption, and new clients realizing they are falling behind and rushing to get something on the cloud.

The discussion coming from Pivotal on the growth side does concern me. Why did they focus on growing additional business from their existing clients last year, and why are they focusing on new clients this year? In such a hypergrowth environment, shouldn’t they have an enterprise sales strategy that allows them to grow both, and shouldn’t they be vastly expanding their sales team? Saul did suggest I was a bit naiive in this, though - he suggested that their current growth rate might be as high as a company can sustain and manage.

Anyway, circling around to answer your question, I don’t think there is any worry about the number of addressable clients for Pivotal. The number is enormous, in almost all industries. Financial services are usually early in new trends, and most big banks aren’t there yet. If you walk back to industries like manufacturing that are slow to adopt new technologies, they are just starting to look. The client growth should be enormously accelerating over the next few years, and I’ll be worried if it isn’t.

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Interesting, SteppenWulf. How long have you been at the bank you’re currently with? Have you seen increased usage of Pivotal by your company each year, and do you think it will continue to increase at a similar pace? For how long? I’m curious about what causes organizations like yours to spend more and more with Pivotal, as evidenced by their 158% expansion rate.

Do you think smaller organizations would have a need to use Pivotal to the extent your company does? You said that “The vast majority of enterprises have started to realize that there are big cost savings and agility benefits to getting on the cloud, but have just started putting their toes in the water.” Just wondering if that’s only the largest enterprises…and maybe not all industries.

Thanks,
Bear

Why did they focus on growing additional business from their existing clients last year, and why are they focusing on new clients this year?
a complete WAG but I have seen this before in companies that had a flawed salesperson compensation plan. Salespeople follow the money they get before following the money the company gets.

When I started 2 yrs ago at my current bank, we had just made the decision to use Pivotal. I was brought on to help transition them to the cloud and to micro-service agile architecture. We actually won the award for 2017 as the best digital bank in the world, due to this transition and the mobile first apps we developed as part of it.

From the point of Pivotal use, we are currently using Pivotal and the cloud for 10 (5 in NA, 2 in Europe, 3 in Asia) of our over 1000 public facing global applications. We are just now examining public cloud - in fact I recently presented our business case for transitioning some apps to public cloud.

You can reasonably expect that in the next 5 years we’ll transition a majority of our customer facing applications to the cloud, and perhaps start moving some of them to the public cloud. All of our new applications and the things coming out of our Innovation Lab are going to Pivotal (and most to Mongo) by default, unless there are reasons not to.

Prior to this, I worked as a consultant to another huge US bank that had made the strategic move to relocate a lot of their apps out of their data centres to the Amazon cloud. They ran into trouble in the port and brought me in to help. I finished that engagement, but keep in touch with the Managing Director who brought me on. They are now considering moving away from a direct Amazon process to a Pivotal architecture to avoid vendor lock-in.

I also previously worked at one of the top automotive company in the world. Manufacturers are usually slow to move to the latest IT, but car companies are an exception because of the amount of new technology going into the “Connected Vehicle” initiative and self-driving cars. They are moving to Pivotal for their thousands of global apps, not only in the offices, but especially for all the applications running in the cars.

Just three examples I’ve personally seen of the amount of Pivotal growth to look forward to, not only in the financial sector.

To answer your other question, I think the Pivotal opportunity is primarily in large companies. Startups and small companies don’t have time to worry about vendor neutrality. They already have common processes because they only have a single IT group. They’ll just choose a cloud vendor or container, and get working to satisfy their customers’ needs.

You need companies with a complex IT group, with pressures from different groups to use different tools, competing against pressures from enterprise architecture, security, compliance, to simplify IT processes and reduce costs to get the maximum value from Pivotal.

Now when I say large companies, it really means practically any company traded on a major public exchange - what I’m really excluding is Ma and Pa shops and one-product companies. A simple test - if the company is large enough to need an enterprise architecture group, it is a very likely candidate for Pivotal.

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Wulf,

We’ve had some lively debate on MongoDB in the recent past.

What is ur take on mdb?

How pervasive is the database?

Is the premium version worth what mdb charges?

What line does one cross to go from the free database to the subscription?

Do u use other dbs or mostly Mongo?

Thx for ur input ahead of time.

Rizz

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Hi folks,

I’ve gone back to look at this deep-dive thread.

I’m also in IT (since '87), working for insurance companies until recently, and now working for a vendor that specializes in corporate and bank owned life insurance (COLI/BOLI) .

I’m probably in the least cutting edge area of IT, which is group life, so I’m just learning some of this now, and I don’t really have any insight or opinion on which direction the industry will be moving, from an insider’s perspective. But I enjoyed the back and forth between wulf and conehead. Containers (Docker) versus Pivotal.

I saw this on youtube and thought it was worth mentioning.

https://www.youtube.com/watch?v=9dvQm957wSs

Maybe it’s not “new” news to anyone, but it seems Pivotal has a “plan” or at least a “pitch” for dealing with a pro Docker or kubernetes bias. I thought that was interesting.

Randy

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