Cloudera’s Business Model Transition Gives Investors a Growth Stock at a Value Price

Cloudera's Business Model Transition Gives Investors a Growth Stock at a Value Price


Until last year, Cloudera‘s (NYSE:CLDR) name probably misled some investors, as the big data specialist’s legacy on-premises platform doesn’t leverage cloud technology. But in August, the company released the last piece of its long-awaited cloud offering it launched one year ago, and management communicated last week encouraging signs of adoption. That means Cloudera is becoming a growth cloud player in the attractive big data market, yet the stock price doesn’t reflect that opportunity.

Solid quarterly results

The company posted better-than-expected results during its fiscal third quarter ending on Oct. 31. Revenue increased 10% to $217.9 million, above the guidance range of $207 million to $210 million thanks to solid execution. And savings materialized following the merger with big-data rival HortonWorks in 2018. Non-GAAP (adjusted) income from operations reached $49.3 million compared to a loss of $8.3 million in the prior-year quarter.

Following these strong results, management raised its outlook with full-year revenue expected to land in the range of $862 million to $865 million, up approximately 9% year over year.

Man touching cloud with padlock icon on network connection.

Image source: Getty Images.

Encouraging transition to the cloud

More importantly, CEO Rob Bearden revealed during the earnings call encouraging developments with the company’s new big-data cloud platform.

Indeed, given the rise of cloud computing, addressing the big-data cloud market has become key to capturing long-term growth opportunities. As an illustration, you probably heard about the stellar performance of the innovative big-data cloud specialist Snowflake (NYSE:SNOW).

Cloudera announced in August CDP Private Cloud, a private cloud version of its cloud data platform (CDP), which complements its public cloud big-data solution (CDP Public Cloud) released last year. With both CDP Private Cloud and CDP Public Cloud offerings, the company developed a hybrid cloud platform that allows customers to leverage their data centers or any private or public cloud computing infrastructure to run their data analysis processes.

Bearden shared encouraging signs about the early adoption of the company’s CDP platform. During the fiscal third quarter, the number of CDP Public Cloud paying customers increased by more than 40% year over year. And taking into account both CDP Private Cloud and CDP Public Cloud offerings, more than 10% of the company’s customers have initiated their migration to the new CDP platform. That includes more than 50% of customers generating more than $1 million annual revenue.

The commitment of these largest customers is particularly important, as it shows the company has developed a new attractive and scalable platform that should generate growth over the next several years. That development also protects the company against intensifying competition for large deals. In particular, Snowflake will be increasingly focusing on large enterprises to fuel its long-term growth, as CFO Michael Scarpelli highlighted during the company’s last earnings call.

I expect Cloudera to keep enhancing its new cloud platform to build a comprehensive cloud-based big-data solution. Last quarter, it acquired the streaming analytics specialist Eventador to integrate real-time and flexible data analysis. And it announced in September new cloud-native data storing, processing, and visualization services on CDP Public Cloud.

Given its early success with its new cloud platform, Cloudera should match the growth of the big-data market it addresses. Estimates vary, but research outfit Fortune Business Insights anticipates the market will grow at a compound annual growth rate (CAGR) of 14% by 2027, which suggests the company should sustain strong double-digit revenue growth over the long term.

A cheap cloud stock

As the company’s recent hybrid cloud offering has yet to translate into meaningful financial results, the stock is still trading at a reasonable — or even cheap — valuation. Based on the midpoint of management’s full-year guidance range, the stock is trading at an enterprise value-to-sales ratio of 4.

Besides, Bearden announced a significant $500 million share buyback authorization, which represents 12.9% of Cloudera’s market cap.  That’s a smart move that takes advantage of the stock’s modest valuation without putting the balance sheet at risk.

Indeed, the company accumulated $564.2 million of cash, cash equivalents, and marketable securities at the end of last quarter with no debt, and it intends to profit from favorable conditions to finance its share repurchase program with a term loan.

Given the encouraging signs of Cloudera’s transition to the cloud, investors should consider taking advantage of tech stock’s modest valuation, too.