Having a tough time keeping up with everything lately. Just finished reading Pivotal’s call and I’d encourage others to take a look.
Let’s try to quickly summarize the bear case.
#1 - Look at the very small number of customers (377) and additions (9) this quarter. This isn’t a real company if they can’t add more customers than that every quarter.
#2 - Reliance on Services Revenue. The product doesn’t sell itself and takes a significant amount of effort to sell, let alone get up and running.
#3 - They aren’t showing any signs of penetrating the mid-market customer.
#4 - Lumpiness
#5 - Guiding only 36% sub growth
#6 - Dell ownership (I will not comment further on that here).
Now let’s look at the quarter and the bull case.
Subscription revenue grew 50% this quarter and 55% for the year. New customers grew 32% this year versus last. The net expansion rate is 149%! Gross Margins increased to 68% from 59%!!! Based solely on the subscription revenues, the EV/S is 12.4 and about half of that on total revenues. That is right in the range for multiple expansion. Yes, yes, go ahead and bring up Nutanix if you must.
The conference call seemed very positive. I believe everyone is afraid of having only 9 new customers in a quarter. First, new customers this year grew 32% and combined with the superior expansion rate, this sets up very nicely. Second, the risk/reward scenario on customer growth seems favorable. SI partners will help fuel this growth. We don’t hear of Pivotal’s customers being unhappy with their service and, in fact, agile software development appears to reap vast rewards. I think it was Ford or another auto maker who had to pare back usage or some such thing which I will call FUD. They are diversifying their verticals quite well. Read the call for further info.
PAS appears to be a more holistic buy-in for customers while PKS with a bit lower ASP may help gain new customers faster. But one may ask, who cares? They have penetrated 33% of the Fortune 100. Lots of opportunity left there. They are, in fact, growing customers quickly enough to see great revenue growth when figuring in the expansion rate.
Would love to hear why others think this is wrong.