On a side note, their Conference call is pretty disastrous for hadoop. They basically say on-prem is going away.
Not a side note, in my view, but a big driver of business results (or lack thereof).
But, let me back up a bit. There’s a bunch of people on this board who believe that they don’t need to understand a business in order to make money investing in that business. I’m a simpler person, and so I do need to understand what a business actually does and how they intend to make money before being comfortable investing in it.
What I personally see with Talend right now is confirmation that if you’re investing based exclusively on financial data, then you’re at risk of that financial data turning on a dime (or at least a quarter - pun intended). Maybe that’s why so many people here track their companies not just weekly, but daily. However, I find that when I understand the business model I have better insight into what’s coming, and more importantly am able to put events into proper perspective, including a longer term perspective.
I’ve been very negative on Hadoop-related businesses for a while. It’s not just a complicated technology, it’s got quite a functional negatives that severely restrict its TAM. I never got into TLND precisely because Talend’s business was built around the dual declining markets of on-premise Hadoop deployments. I say dual because generally new cloud deployments are outpacing on-premise deployments, AND Hadoop usage is declining (or at least not growing substantially). (BTW, these trends are MDB’s friends! But, that’s for a different thread.)
Here’s what Talend’s CEO says about that: existing customers are actually still purchasing premise Hadoop at a pretty aggressive pace, but new customers are by and large aren’t, and pretty much not at all…But what they’re choosing is to do it in the cloud, because it’s just a well of lot simpler and cheaper to do it there. (https://www.fool.com/earnings/call-transcripts/2018/11/07/ta… )
And then this is probably killed the stock: So the deceleration in growth is happening faster than we had anticipated… we’re not getting the kind of large enterprise deployments on the cloud. So in this matter of fact that we’re not getting them on premise Hadoop either, but we used to see deals that were – few deals above 500K and every now and then, deals above $1 billion of new ARR in any given quarter…because the cloud deals now are almost entirely to new customers and customers with any new technology to tend to start smaller.
This has all the earmarks of classic disruption. What’s intriguing is that Talend didn’t get caught completely flat-footed. They have had a cloud solution in the market to pick up the new business. But, it shouldn’t be surprising that the new business didn’t scale up quickly enough to replace the old business without any fall off in revenue. (I have concerns about Nvidia in the next several years in that regard, but again, that’s for another thread).) As the CFO points out: cloud deal size is up 25% year-over-year in Q3…We did win a number of cloud deals over a 100K in the quarter, and so we’re seeing good steady momentum upwards.
It would appear that Talend management deserves some credit for being reasonably well positioned to survive a disruptive shift in the market. Yeah, they got caught underestimating how fast the market would turn, but many companies fail to see the disruption coming at all.
And then there’s Stitch. As much attention as this has gotten, I don’t think it’s enough. Stitch may be the key for Talend’s eventual turn-around (if indeed it does pull that off). Stitch is a self-service platform (another self-service platform is Tableau) that simplifies data ingestion into the cloud, including multi-cloud. The service starts as low as $100/month currently.
Stitch is way easier and cheaper than Talend in this data ingestion piece. That makes Stitch a door-opener for companies or departments within enterprises that are getting started with data warehousing. “The first part of what we do is take data from somewhere and put it somewhere else,” Tuchen said. “They do it in a far simpler and faster way than we do.” Talend also provides data transformation services, a market Stitch chose not to address.
Talend sees Stitch as a way to ease customers into ETL. Organizations typically adopt ETL tools for new data warehousing projects but “but shortly after that they find they need to clean up the data, correct it and blend it together,” Tuchen said. “We can solve that problem, and because we have a relationship [via Stitch], it gives us chance to be in the conversation.” https://siliconangle.com/2018/11/07/talend-shares-fall-weak-…
Or, as ZDNet postulates: But longer run, the real goal of the acquisition is for Talend to apply the expertise of the Stitch team – which will remain in Philadelphia where it’s always sunny – to applying their design thinking to some of the flagship products. In that sense, it could become sort of a reverse acquisition, where the skills of the 30-person acquired company rub off on the parent that numbers over a thousand in staff. With deeper pockets, Talend intends to expand the Stitch team. https://www.zdnet.com/article/talend-buys-stitch-to-extend-i… (emphasis added)
Again, that kind of acquisition not only of technology but of brain power and a different way of looking at solutions, are the hallmarks of disruption in play, and if you’re read Christensen you’ll see that Talend appears to be making the right moves.
Of course, this doesn’t mean Talend will eventually be successful. It’s certainly a longer term play than a quarter or two. Neither Mr. Market nor Saul’s Board engage in that kind of long term investing strategy. But, this has me intrigued and I’m putting TLND on my watch list and may even take a nibble while sentiment is down. I do find the ETL business incredibly boring, but if Stitch can be the self-service door opener for Talend, it might just be able to ride the trend instead of fighting it.