Project for the Board - PVTL revenue model

Apologies for having this idea but not feeling like I have the time today to work on it, but here is the idea anyway if anyone would like to pick up the mantle in my stead before I can get to it.

To model Pivotal revenues, I would suggest breaking it down into basically 3 pieces, 1 being the non-subscription, low margin legacy business, the other 2 being segments of the subscription business with 1 being the “official” customers (those with >$50,000 of spend) and the other 1 being all other customers that don’t get counted as official customers (those with <$50,000 of spend).

Further aspects:
Look at what Pivotal reported as the recent growth rates for each segment and extrapolate with some reasonable forward-looking rates (slowing the dollar-based retention rate since they said to expect that).

An assumption will likely be needed to get the breakdown between the “customer”/“non-customer” portions of the subscription business. This could be tweaked as a sensitivity study to try to get a better gauge of what it likely is. I would probably start with assuming about 80% of the subscription spend is from the “official customers” (>$50,000 spend), then from that total value an average spend from an “official customer” could be estimated (thinking it would be in the millions based on the customer #).

This official customer value could then be modeled going forward with the slowing down dollar based retention rate and the addition of new customers (20 in the most recent quarter, as I have seen mentioned in at least 5 or 6 different Pivotal-related posts). The customers that graduate to “official customer” status could be modeled as starting off their “officialness” at some number between the $50,000 mark and whatever the average spend of the existing “official customers” comes out to be.

The legacy, low margin business modeling would likely be much more simple and become increasingly relevant going forward. Also, the sub-“official” customer modeling could be quite simple and would be much less relevant than the official customer numbers as duma, Bear, and others have pointed out quite clearly based on the lowness of the “official customer” count.

Concluding thoughts
While I don’t anticipate that a consensus model could be developed that everyone would agree on, I think a decent one would be possible and provide some value to the discussions here. Of course, the next earnings report will tell a more important tale (and can feed valuable information into further refining the model).

If someone decides to take a stab at this, please respond here in this thread as I will likely come back here to check before I dive into any actual number crunching.

-volfan84
long Pivotal via call options (Sept 2018 $22.50 and Aug 2018 $30)

3 Likes

I am thinking about PVTL much more simply than most on this board. I’m not worried about what a customer is, if 50,000 is the right level, if the customers they currently have are to big, modeling revenues, etc.

A dollar of revenue from an existing customer is just as good as one from a new customer. With a net expansion rate of greater than 150% for many quarters in a row, the existing customers have a lot room left.

Customers obviously love the PVTL product: greater than 150% expansion rate, Air Force and Boeing testimonials. And Steppenwulf’s first hand knowledge!

Also, the big demand for people with PVTL experience.

I go back to what I know to be true:

  1. PVTL increased revenue at 28% last quarter, which is accelerating, I think it was 19% the previous quarter. With subscription revenue increasing by about 70%, and it becoming a larger portion of total sales, the total revenue growth should continue to accelerate.

2)The margins continue to get better quickly as more sales are from the much higher margin subscription service.

  1. Last quarter the company was cash flow positive, at $4.5 M. The company was profitable. This should continue to get better as 1) and 2) above continue.

As long as 1,2, and 3 above continue I think the odds of this company’s stock going higher is likely. If 1,2, or 3 change, all bets are off.

Jimbo
long PVTL as long 1,2, and 3 continue

20 Likes

Last quarter the company was cash flow positive, at $4.5 M. The company was profitable.
which used to be the dividing line between a investment and a speculation.

Until a company can actually make money ,what we have is a belief, a hope, a guess, an expectation that they can do so. In the not too far distant future. Because if they don’t they will eventually run out of ways to raise capital and will go broke. Long before that ,their stock price will decline substantially.

2 Likes

Last quarter the company was cash flow positive, at $4.5 M. The company was profitable.
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which used to be the dividing line between a investment and a speculation.

Until a company can actually make money ,what we have is a belief, a hope, a guess, an expectation that they can do so. In the not too far distant future. Because if they don’t they will eventually run out of ways to raise capital and will go broke. Long before that ,their stock price will decline substantially.

Seeing that post from you, mauser, my mind can’t help but drift immediately to Tesla :slight_smile:

Everyone, please don’t turn this into a Tesla thread…simply recalling that I have seen mauser post a fair amount about Tesla.

-volfan84
short TSLA via July 20 2018 $230 puts…Strongly anticipating a 100% loss on this position