After Cloudera Inc (NYSE:CLDR) shares witnessed a 20% pop on the first day of trading, people were inclined to think that the oversubscribed IPO was indicative of an analytics company that got it right. But after the initial optimism faded with a peak over $23 per share, CLDR’s stock price is now down almost 15% since the IPO.
What gives?
I suspect that as investors took a closer look at Cloudera’s product and the overall landscape in enterprise software, they started noticing the cracks.
Enterprise tech has been a hot commodity, and while the public may have bought into the excitement surrounding the offering, the sustainability of the business as a leader in data management is in question.
It’s a hyper competitive space. So while there’s no doubt that Cloudera picked a great time to go public and raise funds, future performance could seriously be handicapped. It’s time as a “unicorn” may prove to be short-lived.
CLDR’s Software
Like many tech startups, the early days looked extremely rosy. CLDR was backed by veterans of Silicon Valley with well-known venture capital partners like Greylock and Accel on board as well. Cloudera also had a pivotal industry partner in Intel Corporation (NASDAQ:INTC).
All in all, CLDR raised $900 million in pre-IPO money with the lion’s share — $760 million — from Intel. In late 2014 and through 2015, data storage and management was all the rage. And CLDR, with its open-source product, found itself in the limelight.
But despite all the promise, Cloudera has failed to live up to expectations. The company did just $90 million in total revenue in the last quarter and continues to lose money at the operating and net income levels. It just hasn’t been able to monetize effectively.
Early investors have made out like bandits, but moving forward, investors have reason to be wary.
Hadoop
CLDR’s core product, Hadoop, was somewhat of a revelation when it first came out. It was open source and, thus, commanded a lower price point. It meant, though, that one had to hire programmers to tinker with it.
A future of Big Data domination, never quite materialized, though. Cloudera’s unstructured system simply was too much of a headache for customers, who then had to essentially DIY all their computing needs.
What’s come to pass is new competitors entering the field and offering similar cloud-based alternative at reasonable prices that are simpler to use. Cloudera is not only not the sole player in the field, it isn’t the leader either. Cloudera is lagging behind the big boys like Amazon.com, Inc. (NASDAQ:AMZN), with AWS and even Azure — the company has been left behind, technologically speaking.
Keep in mind that when Cloudera first started out, the big boys weren’t 100% in the game, but over the last couple of years, AMZN, Oracle Corporation (NYSE:ORCL) and many others have jumped in, guns blazing.
And as large tech companies that may once have needed their services take an increasing amount of data storage and analytics in-house, leveraging their own armies of programmers, Cloudera will be rendered obsolete. They may still be able to hold onto some small and medium-sized enterprises (SMEs) that don’t have the bandwidth to take it in-house, but what this means is slower-than-expected top-line growth.
Future of Cloudera
With its successful IPO, cash on hand is just shy of $400 million — but cash burn is likely around $30-$40 million a quarter. So, this is probably not a crash-and-burn situation. However, I have no expectation of profitability now or in the future, based on the existing business model.
Cloudera is likely to die a slow death, and I wouldn’t want to be the chump at the end of the line.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
