Pivotal, what I did (for those who care)

Pivotal, what I did (for those who care).

You’ll remember, in my recent Category Crusher post (see side panel, I wrote the following:

Pivotal is hard for me to figure. It’s only a three star conviction position (out of six) because there are so many complications. The problems aren’t with their revenue growth or margins or other financials. Those are amazingly superb. The problems I’m talking about are like being 90% controlled by Dell. Like how do containers and kubernetes fit in? Like why don’t they grow the number of customers faster, etc. Like it’s nice that they hardly have any S&M expense, but is that realistic for the future if they actually have to go out and find their own customers?

Now, with the recent earnings report, even their financials become a puzzle. I decided I had to put in in the “too hard” basket. I sold out my whole position yesterday (Monday) morning, at about $22.00 give or take 20 cents. What did I do with the cash I raised? I put about:

15% of the cash into Nutanix,
9% each into Zscaler and into my small PayCom position,
7.5% into New Relic
6% each into my large positions in Alteryx and Twilio,
5% into my small position in Wix
smaller amounts into Square, Mongo and Okta.

Then I put 12% of the cash I raised into Nvidia, and about 8% in Arena. And I still have a smidgen of cash to deploy.

I had already decided over the weekend to sell half the position, but when so many good stocks were also down on Monday, I went ahead and sold the whole thing at once.

I hope this helps,



“8% in Arena”?

Was that a typo or a new stock you are investing in?



I think it may be Arista

I think it’s Arena Pharmaceuticals


1 Like

Arena is the biotech stock that bulwnkl posted about a few days ago.

Mostly quoting from bulwnkl, and a bit of my research (accompanied by a dictionary!)

They’re a turnaround, blew a bunch of cash on an obesity drug that no-one bought. They have 3 major drugs in the pipeline, Relinepag which is looking good, but TAM is pretty small. Etrasimod, for treating ulcerative colitis which is what Bulwnkl is excited about, a much bigger TAM.

Olorinab is looking like a next-gen pain killer, which may be anti-inflammatory, looking at treating Crohns pain.

Long-term strategy for Arena “heading to build substantive company over long period”

Bulwnkl has had a pretty stellar record with biotech.



“8% in Arena”?

Was that a typo or a new stock you are investing in?


Note also that that is 8% of the cash proceeds from selling PVTL, not an 8% position. It is something more like 8% of 4%, so a very tiny total portfolio allocation.



Not that anyone cares, but I sold my entire position the day after the earnings call.

I am not nearly as adept at financial analysis as many who post here, so the questionable numbers was not my primary motivation. For me there were two deciding factors:

  1. I never had a strong conviction for PVTL in the first place. I don’t know what they claimed their TAM might be, but from my perspective it was always limited to very large enterprises with very large programmer staffs. I just didn’t see how they could continue to grow after they got the slam dunks out of the way oh yeah, they’ll still grow but at a much slower pace. Tinker lambasted me for this analysis, and I have a great deal of respect for his analysis prowess, so I reconsidered and bought a smallish position - but my doubts remained.

  2. The CEO’s response to questions during the most recent ER pushed me over the edge. He wasn’t just evasive, he was extremely verbose in his inability to be forthcoming. This is not the hallmark of what I consider great, or even good leadership. If you work for this guy how can ever take direction from him? How can you ever decipher what he’s actually saying?

I consider management, intangible and without direct measure as it might be, one of most important criteria when it comes to making an investment. In my opinion, Pivotal is a ship without a rudder floating aimlessly in uncharted waters.



I concur with you. There was a misperception on a few things, but the primary misperception (at least to date) is the synergies with VMWare. Perhaps that will work its way out as we go, but at present there is not much in regard to VMWare relationship leading to accelerating customer retention. I do know, as an example, Southwest went with Pivotal mostly because of the VMWare relationship, and I am sure there are others, but I do not know any of the others.

Management was exactly everything you described.

As for those holding Pivotal, perhaps they will right the ship. My opinion in circumstances like this is sometimes time to move on. Nutanix, as an example, that was a clear FUD event (Fear Uncertainty Doubt) that one could perceive through the veil of fog and get to the truth of the matter with great certainty despite the market panic. Therefore I loaded up on Nutanix with a very large truck backing up.

Pivotal, however, is that really a FUD event? No. It is a fundamental business issue event. I do not think we are misperceiving the fundamentals. This is a business model, and a brilliant product, that performs miracles for its customers, but the sales practice this company uses needs a heck of a lot of work, and it appears management cares little about this at this time.

I know that some say the $50k arbitrary definition of a customer. However, two things on that (1) $50k spend is nothing. I am a small law firm, I spend more than $50k on my website alone in past years (fortunately I have cut that expense by more than half with a lot more productivity now), but if a little guy like me can have multiple expenses in this range, for these large corporations this is a pittance, so it is not really that conservative of a measure, (2) Pivotal knows its pipeline, and yet as others have laid out their guidance shows a dramatic slow down in subscription revenue over the next two quarters. If they are honestly assessing their pipeline then this shows that there is no hidden pipeline of customers excluded based upon the definition.

It may still happen, I cannot say, but to me these are fundamental issues and there are so many other places to put our money in hungry and aggressive and clearly (not hypothetically) dominating companies. Gave Pivotal a shot because that business model is Arista like if they can just get say 25, 30, 35 new customers a quarter.

15! Pivotal proclaimed loud and clear at their first earnings call, and interviews around that, that the number 1 priority of Pivotal (other than maintaining great product) is to bring in new customers. And yet the rate of customer growth appears to be slowing from prior years when that was not the priority.

I am subject sometimes to jumping the gun and becoming overly cynical sometimes, so I say that because perhaps that is what I am doing now. However, since there are so many other investments, as specified above, I, personally, can see no reason to HOPE that the fundamentals that Pivotal has expressed are really conservative and omitting a lot of new customers who just did not make the definition this quarter.




Billings growth was less than 2 percent, which, according to Barclays’ Lenschow, is uninspiring.

After a strong first quarter, Pivotal only added 15 enterprise customers, the analyst said.

Other analysts were a bit more positive. “Lumpiness” yes, sure, that happens. Billings growth less than 2%…I am not an expert on what that may mean in the context of Pivotal, but I think it is accurate to say that for a growth company that is truly “uninspiring”.


Compare to billings growth at Nutanix (55%), Zscaler (75%), 2%…

Again, if someone could explain the context of 2% for Pivotal in billings growth, that might be helpful to understand why this is not just a fundamental issue but a lumpiness issues.




Brittlerock and I agree on something else again! Tinker

Me too. You guys expressed it very well. Time to move on.

1 Like

I ended up selling my shares after much thought. For me customer growth this Q was not as much an issue. It was 35 in last 2Qs (1st half of FY2019). What concerned me was only 44 new customers in all of FY 2018 vs 105 and 95 in the previous 2 FYs. Was the overall move to kubernetes affecting Pivotal so much which explained the low customer growth in FY 2018? They did come up with PKS to address kubernetes last year. But apart from generalities such as PKS is doing well they did not discuss details about it. It seemed that management was not confident enough that they have the best product in that area. At least that was my perception. I wonder what others with a better understanding of the technology think.

1 Like

I wonder what others with a better understanding of the technology think.

For me Pivotal is the “42” of IT, it solves everything by enabling AGILE and removing complexity. With Pivotal the programmer is free from all cares except his/her code which is what he/she loves. From a business point of view it could be replicated but the moat, if one can call it that, is path dependence or first mover advantage. What puzzles me is why only really big companies are customers. Maybe it’s their way of defining “customer,” $50K plus. Why do they do that? One theory that occurred to me is the Pareto 80/20 distribution, 20% of customers account for 80% of revenue. Why bother with the bottom 80%? At a business where I was in IT we created two sales models, one for the 20% and a different one for the 80%. It created an incredible increase in sales efficiency, delivery time was cut in half among other good stuff. Just thinking out loud…

What did I do? Hold and buy back covered calls. I think the market is focusing on short term and on the wrong metric.

Denny Schlesinger


To further provide motley discussion on PVTL, there have been only two quarterly earnings so far. In the world of data dependence, it’s sometimes worth while to ask do you have enough data to support your hypothesis? Saul, Tinker, brittlerock and others have presented very good reasons to get out based on data in hand. However, there was great discussion on the stock that I want to attribute to Dreamer providing excellent foundation understanding that got people invested with PVTL in the beginning.

I personally am invested with a 3.5% exposure seeing the long term view of the technology and will re-assess perhaps after another earnings release or two. The concern for me is to much discussion and over analysis on such a small data set. Perhaps I’ll be wrong and PVTL will drop below the IPO price but I’m willing to hold on for now.



Is industry moving to Kubernetes a threat to PVTL? Or does PKS sufficiently address that threat?