Much like Dropbox (DBX) , Cloudera (CLDR) is looking like a software name that has become a value play thanks in part to how markets haven't appreciated where the company has room to stand out amid competition from tech giants.
Cloudera, which provides software tools for running big data/analytics projects, is up slightly on Wednesday (in spite of a 5.8% Nasdaq drop) after beating January quarter estimates, issuing somewhat better-than-expected guidance and -- perhaps at the urging of major shareholder Carl Icahn -- announcing a $100 million stock buyback. The buyback is good for repurchasing close to 5% of shares at current levels.
Cloudera's January quarter revenue and billings growth rates are skewed by its merger with rival Hortonworks, which closed early in Jan. 2019. However, its annualized recurring revenue (ARR) growth, which does qualify as organic, came in at 11%.
Likewise, Cloudera's sales guidance paints a picture of a company that's seeing respectable (albeit not massive) growth. April quarter revenue guidance of $202 million to $207 million, which assumes a slight impact on services revenue from the COVID-19 outbreak, implies 9% growth at its midpoint. Fiscal 2021 (ends in Jan. 2021) revenue guidance of $860 million to $880 million implies 10% growth at the midpoint.
The competition faced by Cloudera from the solutions launched by Amazon.com (AMZN) , Microsoft (MSFT) and Alphabet/Google (GOOGL) for running big data projects on their respective public cloud platforms has undoubtedly eaten into its long-term opportunity some. In addition, the company also faces competition from the likes of private Databricks and Hewlett-Packard Enterprise's (HPE) MapR unit.
Nonetheless, as Cloudera chairman and then-interim-CEO Marty Cole highlighted in a September interview, the company is still seeing good traction within verticals where (for strategic, regulatory and/or security/compliance reasons) organizations often prefer to run big data projects within their own data centers, such as financial services, healthcare, government and telecom.
And going forward, Cloudera's efforts to address IoT/edge computing workloads should act as a growth driver, as should a partnership with IBM (IBM) and its efforts to fuse Hortonworks and the old Cloudera's offerings into a common data management platform that can work across a variety of on-premise and public cloud environments.
Meanwhile, with Cloudera generating positive free cash flow (FCF), buying back stock and sporting an enterprise value (EV = market cap minus net cash) equal to just 2.4 times its fiscal 2021 (ends in Jan. 2021) billings consensus, competitive headwinds look more than priced in.
There are some parallels here with how Dropbox, which currently has a $5.5 billion EV and recently set a goal of producing more than $1 billion worth of annual FCF by 2024, has sported a discount valuation thanks partly to worries about competition from the cloud storage/file-sharing services provided by tech giants, and the way in which limited enterprise sales efforts curtail Dropbox's addressable market.
Just as focusing on the aforementioned pressure can lead investors to forget about the popularity of Dropbox's core services among individuals and small businesses, as well as how it has room to deliver moderate growth with the help of new service launches and the conversion of more free users to paid subscriptions, focusing on Cloudera's limitations can make investors forget about what it still has going for it.
