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Why Cloudera, Inc. Stock Gained 13% in March

By Asit Sharma – Apr 12, 2018 at 3:52PM

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Skies for Cloudera were cloudless just a few days before the storm.

What happened

Stock in data-analytics provider Cloudera, Inc. (CLDR) gained 13.3% in March, according to data from S&P Global Market Intelligence.

So what

Cloudera shares trended steadily upward during March in anticipation of the company's fourth-quarter and full-year fiscal 2018 earnings report, which was released on April 3. Alas, shares took a brutal 40% haircut during the trading session that followed the issuance of results:

CLDR Chart

CLDR data by YCharts.

Cloudera's woes didn't originate with its actual results. The machine-learning and data-analytics company posted a 42% revenue increase in its fiscal fourth quarter -- three months ended January 31, 2018 -- to $103.5 million. Subscription revenue improved 50%, to $84.3 million. Similarly, full-year revenue rose 41%, to $367.4 million, and full-year subscription revenue jumped 50%, to $301.0 million.

However, the company's fiscal 2019 guidance greatly disappointed investors. Cloudera provided an outlook for revenue growth of 20%, in a range of $435 million to $445 million, and subscription revenue growth of 24%, which is projected to fall within a band of $370 million to $375 million. 

Of these numbers, the drastic reduction in the subscription software growth rate most rattled the market. A sudden slowdown in subscription growth can imply several ills, from fiercer market competition to weakening-use cases for a company's products. And in a cutting-edge field like machine learning, it's imperative for customers to continually find new ways to produce a yield on their analytics-software subscriptions.

Female engineer looking at data visualizations on multiple screens, reflected in glass.

Image source: Getty Images.

Now what

During the company's earnings conference call, management attributed the projected diminished growth rates to a loss of focus in marketing to its core customer base during the quarter. This universe of current and potential clients comes from the large enterprise segment of the data-analytics market, which the company dubs the "Global 8,000." Management asserted that it had uncovered its marketing deficiencies using its own software and was refocusing on customers with the highest long-term potential, squarely within the Global 8,000 group.

As Cloudera regroups, investors should exercise caution. While the company's balance sheet is relatively healthy, 2019 projections call for continued per-share losses and negative operating cash flow estimated at between $35 million and $40 million.

Cloudera needs to reinvigorate revenue growth to provide enough margin to stop its cash burn. Thus, prospective share buyers should monitor the company's newly intensified marketing efforts from quarter to quarter -- and perhaps from the sidelines -- for now.

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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