https://seekingalpha.com/news/3416172-pivotal-software-beats…
https://seekingalpha.com/pr/17355260-pivotal-reports-third-q…
Subscription revenue grew 53% year over year; Total revenue grew 30% year over year
Subscription customers increased to 368; 17% growth year over year
Dollar-based net expansion rate of 150%
I added a small trading position after-hours at $19.05/share.
-volfan84
I added a small trading position after-hours at $19.05/share.
-volfan84
Curious how you’re seeing it, Vol. Looks really bad to me. The last 3 quarters we’ve seen little growth.
Subscription revenue
$90.1m
$97.5m
$100.8m
Total revenue
$155.7m
$164.4m
$168.1m
Customers
339
354
368
Bear
Bear,
A few points to consider.
The valuation is relatively low. Subscription growth grew 53% this quarter. Next quarter guidance calls for almost 10% growth sequentially which would be 47% growth and they have surpassed guidance on this metric the past two quarters.
Net retention is 150% and the customer growth this year to date is around 26%.
Yes, the sales cycle seems long. The customers are large customers. However, they are buying more and more every year. Like almost 50% more.
Oh, and the margins on subscription are 93%.
I think it is worth some consideration.
A.J.
I could be wrong, but the biggest red flag that I see is the lack of new customers.
Looks like existing customers are pleased, but eggs are not growing and diversifying in that basket.
Comparatively speaking, its more of a speculation as the numbers don’t scream adoption.
I have no idea how their sales cycle should be btw.
I could be wrong, but the biggest red flag that I see is the lack of new customers.
The business focuses on a large overhaul in how enterprises go about developing software. They target big clients. Because of that, the number of customers is low. The spend per customer is quite high.
Again, customer growth rate doesn’t necessarily need to be gargantuan given the net retention rate. While the company does claim this will come down, it has been north of 150%.
If new customers come in this quarter at the same pace (14), total customer growth over the year will be about 40%. I believe that would foretell good things to come next year for the stock price. But that is an “if” of course, and I don’t pretend to know what next quarter will bring.
The valuation is relatively low. I just value the subscription business (not total revenues) and it is growing at 50% roughly. TTM EV/S is about 11x. In 12 months that is 7x if the growth keeps up (ignoring dilution). All of this at a 93% margin.
I just don’t think it should be discarded as an opportunity. But am interested in other’s thoughts.
Thanks,
A.J.
I just value the subscription business (not total revenues) and it is growing at 50% roughly.
AJ,
That’s not correct. You mentioned ~110m next quarter. If they add another 10m the quarter after, that would be 120m. That’s about 33% growth. To grow at 50% subscription revenue would have add another 25m, to hit 135m.
Or look at it this way. The last 2 quarters it’s grown ~11%, so annualized that would be 22 or 23%. Not 50%.
Bear
Until they start growing their customer numbers they seem like a high end supercomputer company that will be disrupted from the bottom up. What, 24 new customers in the last 2 quarters or something like that? Given how slow the adoption is by customers, and there is the fortune 2000 and they have barely cracked that nut, there obviously are other solutions out there that are being used because these companies are not all sitting around like idiots not improving their efficiency.
It simply is not a mass market product. That is fine, if that is good for your investment thesis. For me, history proves that mass market, not small elite market, produces the best investment returns.
So I do have a real issue with the slow growth of their customer base. We do not even know how large these customers are or what their usage numbers are. This 14 could include customers who are barely using the product given the $50k limit to be considered a customer. $50k does not do much for Pivotal.
Thus they give a number of 14 and the real number may be practically worse depending on how much each new customer is spending.
This new customer number them is almost meaningless. Are they growing from their 150 ARR, or are new customers going to spend millions per year? We are given no hint. How can one track the progress of a company like this then?
With only 14 new customers it would be simple to specify at least the degree of spending each is doing this year while keeping them anonymous. Maybe they did at the call, I did not follow. But if they did not do so, it is yet another worthless piece of information as it means nothing. With so few clients the only thing that means anything to Pivotal are customers spending millions per year. The rest does not even count as an asterisk point.
Again, if they gave us some color in regard at their earnings call, then more power to them and that would be different as it enables us to follow the business instead of being distracted by an otherwise irrelevant number. With such lower customer adds every customer counts, and those that are not really spending significant amounts might as well not even be reported as a new customer.
Tinker
Bear,
They have been growing on a QoQ and TTM basis above 50%, but I certainly see your point.
Do keep in mind a couple of things. The company has shown a tendency to beat their forecast. If next quarter is the same, we should expect something closer to $113M. I think it is a foregone conclusion that most of our companies are sandbagging to a certain degree.
The following quarter has shown very nice sequential growth over the past two years of 20% and 23%. The revenues are lumpy, but if this trend adheres, then we can expect over 47% TTM growth by that time.
Thanks for pointing out the difference though.
A.J.
because these companies are not all sitting around like idiots not improving their efficiency.
Actually, I think that is indeed the case. Software development at most companies is pretty non-optimal and the companies themselves are typically ill-equipped to improve from the inside. Those that do try often do so “on the cheap” rather than taking on the “all-in” agile development style that Pivotal pushes.
So, that’s another view in support of Pivotal not becoming a hugely successful company. In an ideal world, it would be, but also in an ideal world first grade teachers would make more money than henge fund managers, as they contribute more to society.
My after-hrs purchase was mostly simply impulsive, as I was actually still on a conference call when I made it. Part of what went into it is a tactical shift in the trading portion of my portfolio to move away from using options much, so that has nothing specifically to do with Pivotal. With the subscription revenue growth at >50% and still overtaking the other revenue, with the overall revenue growth at 30%, next year could have total revenue track up to 31-33%. Dollar-based retention rate still being at 150% still “looks” impressive, but I don’t know how much to believe it. As Tinker mentions, the customer number almost seems to be doing nothing for Pivotal other than obfuscate.
My purchase was mostly based on recognizing that the trajectory of the numbers had improved slightly from the prior quarter, thus the share price hit Pivotal has taken may be reversed a bit over the next few months…and then maybe with total revenue growth ticking a bit higher and with the total margins improving a bit, the shares could go up a bit more.
-volfan84
long PVTL for the time being, but not wed to it
Here are some past quarter’s results for Pivotal.
https://investors.pivotal.io/news/financial-news/press-relea…
From 1st quarter (the one that prompted the huge price bump):
Subscription revenue grew 69% year over year; Total revenue grew 28% year over year
Subscription customers increased to 339; 20% growth year over year
Dollar-based net expansion rate of 156%
https://investors.pivotal.io/news/financial-news/press-relea…
From 2nd quarter (the one that cause the big price decline):
Subscription revenue grew 51% year over year; Total revenue grew 30% year over year
Subscription customers increased to 354; 19% growth year over year
Dollar-based net expansion rate of 150%
https://investors.pivotal.io/news/financial-news/press-relea…
This just-announced 3rd quarter (TBD the full impact):
Subscription revenue grew 53% year over year; Total revenue grew 30% year over year
Subscription customers increased to 368; 17% growth year over year
Dollar-based net expansion rate of 150%
Looks like my after-hours $19.05 price was probably about the worst price I could have gotten, so my timing was pretty terrible.
PVTL has a net expansion rate of 150, and the subscription rev. grew 53%.
So the new customers only added 3% growth.
Either:
The new customers are replacing declining sales from other customers.
The net expansion rate is calculated by cherry picking customers.
The “new” customers were just below the $50 K threshold, and now are just above so they are counted, but aren’t adding much to overall sales.
Also, with the high growth subscription revenue becoming more and more of the total sales, you would think total sales growth would be accelerating.
Last 3 quarters
28%
30%
30%
Jim
My after-hrs purchase was mostly simply impulsive, as I was actually still on a conference call when I made it. Part of what went into it is a tactical shift in the trading portion of my portfolio to move away from using options much, so that has nothing specifically to do with Pivotal.
Went ahead and sold the shares for $18.95 seeing lots of other things shooting higher this morning and Pivotal mostly just sitting still, so I took a $0.10/share loss. There are much better opportunities out there for trading and investing.
-volfan84
I too am now out. I had sold part of my position after the last quarter’s earnings call, but looking back at my post from three months ago where I laid out my expectations :
https://discussion.fool.com/i-did-something-similar-to-ethan-and…
The subscription revenue for this new Q3 announced yesterday came in less than what I estimated (yes, I realize it was more than their guidance, but I was expecting a larger beat consistent with the prior period) and the new Q4 guidance is slightly higher than my estimate, but the FY guidance is still below what I expected when I wrote that. If I didn’t like those estimates three months ago, I certainly don’t like the even lower actuals and FY guidance they’ve reported now.
And importantly, their comps are going to get a lot tougher next year (meaning likely much slower subscription % growth vs prior year equivalent periods) unless they really start to crank up their sequential growth compared to where it has been in recent quarters. As I mentioned in my old post linked above, if the sequential growth stays about the same as it has been recently, the subscription revenue growth vs prior year will be less than 30% next year, starting with Q1, which starts in February 2019, just a few months away.
With the small number of new customers being added, I don’t have enough confidence that sequential growth will pick up a ton, so I’ve sold the last of my shares today.
PVTL could do well as a stock and may very well beat the market over the next few years. But I have a much higher confidence in other companies we follow, and think my funds are better deployed there.
-mekong