In case you missed it, Hortonworks (HDP) filed for an IPO on November 10 and, just over a month later, burst onto the Nasdaq. HDP stock began trading last Friday and, now that the dust has settled, we thought it could be worth taking a quick look at just what you missed.
Here’s the scoop on last week’s head-turning Hortonworks IPO.
1. What Is Hadoop? The first step to understanding the Hortonworks IPO is to understand Hadoop, which is an open-source software used to store and process big data. Large and expensive data warehouses — think Oracle (ORCL) or Teradata (TDC) — used to be the go-to places for housing big data. But Hadoop is an open-source software that spreads data over lots of commodity servers, meaning it’s cheaper, scalable, better suited for unstructured data — aka data that wouldn’t fit neatly into an Excel spreadsheet — and faster for processing.
2. Did You Say Open-Source? Yes, I did. But that’s where a company like Hortonworks comes in — one of many big names (Cloudera and MapR being others) that is seeking to commercialize the open-source platform. Hortonworks sells services and support for Hadoop. For the first nine months of the 2014, that translated to more than $33 million in sales — more than double year-over-year. And HDP stock hit the public markets strong last week. Shares soared 65% on their first day of trading, raising roughly $100 million in the Hortonworks IPO.
3. Who Else Cashed In? Lots of large technology companies have been investing in Hadoop — both adding it to their technology portfolios and betting on companies like Hortonworks. According to Business Insider, Yahoo (YHOO) still has a 17% stake in Hortonworks and made $68 million off the IPO in just two days. Similarly, Teradata’s 7% stake was worth about $72 million after the first two days, while Hewlett-Packard’s (HPQ) 5% stake was worth about $51 million.
4. Is That a Good Sign? You’ve likely heard a lot of big data and Hadoop hype over the last couple of years — whether folks were spurring the hype along or dismissing it. Some think that the successful Hortonworks IPO bodes well for big data as an investment thesis … but Matt Asay at ReadWrite says the VC community largely disagrees. He writes:
“Given its still shaky financials, the risk isn’t merely that Hortonworks will struggle as a public company. The bigger risk is that a weak IPO will hold back other Big Data companies with better financials.”
While Hortonworks has indeed posted strong revenue growth, as we noted, Asay points out that it has a concentrated customer pool … and that the company traditionally spends $3 for every $1 it makes. Plus, there’s the open-source issue we pointed out earlier. Asay writes, “Hortonworks’ strategy is to contribute all of its intellectual property to open-source communities. By definition, the only product differentiation it has is what competitors decide to give it.”
5. Should You Buy? It seems shaky at best to bet on Hadoop when it’s a free offering at its core. And even if you were impressed by the Hortonworks IPO, Hadoop fans may be better off waiting for rival Cloudera to hit the market, as Asay and other experts have been much more impressed by its financials … with all the same mega-trends are at work. Today’s 4% drop in HDP stock only reinforces that idea.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
