Cloudera – A Big Data Stock
May 05, 2021 by InvestorDestination Team
Nowadays, investors are overly optimistic about growth sectors such as artificial intelligence, big data, and are offering high valuations. Cloudera, Inc (NYSE: CLDR) is involved in open-source big-data and artificial intelligence software, but compared to many growth stocks, its multiples are lower.
Despite having 'cloud' in its name, Cloudera did not offer cloud-based products until recently. It provided an on-premise data management platform and analysis tools for large enterprise customers. While its on-premise platform helped customers manage their data and find insights into the data, it was hard to scale, and the initial investment was high. The advantage of using cloud computing is easy scalability and only paying for resources you use. A year ago, Cloudera introduced a cloud data platform (CDP) that manages data in a multi-public cloud environment. Recently it introduced CDP private cloud. Its CDP provides its customers with maximum choice and flexibility with the option to manage, analyze, and experiment with data on-premises, in hybrid, private cloud, and multiple public cloud environments. Finally, the company is ready to participate in the big-data cloud market.
The company expects CDP to help its ARR growth and margin expansion. So far, 15% of its existing customers have migrated from its legacy platform to CDP. It expects that percentage to be approximately 30 to 35% by this year-end.
Fortunate Business Insights estimates global big data technology to expand by 14% CAGR from 2021 to 2027. However, the competition is also increasing. The leading cloud vendors have their in-house offerings, which are similar to Cloudera products. Despite its first-mover advantage, it has lost some customer base to competitors due to the lack of cloud-based offerings. As we mentioned earlier, now the company has cloud-based products, and it is upbeat about CDP. Yet, Cloudera forecasted 10% revenue growth for the upcoming fiscal year in its last earnings release. This modest growth expectation has dampened investors' enthusiasm and raised concerns about its ability to grow.
Like most companies in the technology sector, it has a strong balance sheet. According to the management, the company is undervalued. Recently the company announced a $500 million share buyback using debt, and so far, it used $314.1 million to retire 26.1 million shares. The buyback will help the company reduce its outstanding shares without straining its balance sheet. However, insiders have not purchased the stock; instead, they are selling.
Its on-premise product was suitable for large enterprises. Its hybrid CDP is ideal for large and medium-sized companies and helps the company expand its target market.
The company is adding new products to its analytical suite and expanding its customer use-cases.
Currently, its sales and marketing expenses are high, and it is not profitable yet. In general, a direct sales approach to acquire mid-sized companies will hurt the margin. During this COVD period, the company has developed a digital platform to connect with its customers and plans to use that platform to acquire mid-sized companies. If the company successfully acquires customers in the digital channel and reduces its expenses, and improves margin, its stock should rise.
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