Big data/analytics company Hortonworks (HDP) took it on the chin three months ago after its fiscal Q2 earnings report fell short of expectations. This morning, it's clawing back some of those losses as investors cheer its results in Q3. Up as much as 18.7% in trading earlier this morning, Hortonworks stock is still notching a 16.9% gain as of 11:45 a.m. EDT.
So what are investors so excited about? It certainly wasn't the stock's earnings. For the second quarter in a row, Hortonworks missed analyst estimates, reporting a $0.68-per-share pro forma loss for the quarter in Q3, versus the $0.66 loss than analysts had predicted -- and the GAAP loss was even worse, a whopping $1.10 per share.
Regardless, investors appear to be enthused over the prospects for -- and demonstration of -- better-than-expected revenue. Hortonworks had been expected to report $45.6 million in revenue in Q3, but actually delivered $47.5 million, which was 47% more revenue than the company made in the year-ago quarter. As for the current Q4, analysts are looking for the company to deliver $47.7 million -- but Hortonworks just promised them closer to $48 million.
So better-than-expected revenue, but worse-than-expected profits. That would be great news if companies like Hortonworks were in the business of just selling stuff, with no concern for earning profit on that stuff. Unfortunately, as investors, what we should really be looking for is companies that sell stuff...profitably.
Right now, that isn't Hortonworks. Indeed, if you examine the data on S&P Global Market Intelligence, what you'll find is that this has never been Hortonworks, which hasn't delivered profitable earnings...ever (nor positive free cash flow, either). With analysts who follow the company predicting nothing but continued losses for the foreseeable future, I honestly don't see much reason to be enthused about this stock.
So what's my advice? Right now, investors are offering to pay Hortonworks stock holders 17% more money for their shares after it reported a big loss than those shares cost before the loss was reported. I'd take 'em up on that offer before they get a chance to rethink.