The world's information is very quickly moving to the cloud. Cisco predicts that cloud computing workloads will triple between 2016 and 2021, and that 94% of all global workloads will be processed by cloud data centers by 2021.
Talend (NASDAQ:TLND) is helping businesses make sense of all of that cloud-based information. Its Data Fabric platform allows companies to pull data from multiple software applications into a single data lake, then use other analytics and presentation providers to better understand it.
Think of it as a data collection pond, where companies can go fishing for insights. Data scientists, who experts believe spend 80% of their time pulling and preparing data into a useful format, are some of Talend's most interested anglers. They can be significantly more efficient by using the Data Fabric platform.
Talend's stock skyrocketed 20% on Feb. 15 after the company reported impressive top-line growth and better-than-expected earnings. Let's take a closer look at the fourth-quarter results.
Talend results: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Change
|Revenue||$55.7 million*||$41.5 million||34%|
|Operating income||$0.5 million||$0.2 million||103%|
|Adjusted earnings per share**||($0.41)||($0.37)||N/A|
What happened with Talend this quarter?
As a reminder, Talend adopted the new IFRS 15 standard (the international equivalent of the United States' ASC 606) in 2018, which recognizes revenue and cash flow based upon fulfilling performance obligations. This includes immediately recognizing 10% of ratable software sales up front, which somewhat inflates the company's reported revenue. For the fourth quarter of 2018, Talend's management team estimates that the IFRS 15 contributed a "tailwind" of approximately 5% net benefit to revenue growth. Talend's fourth-quarter 2017 results were reported under the previous standard.
That said, Talend continues to demonstrate strong top-line growth, especially in its cloud subscription business.
- Total revenue of $55.7 million was an all-time quarterly record, and 34% higher than last year's fourth quarter.
- Overall subscription revenue increased 38% to $48.8 million. Excluding the impact of the adoption of IFRS 15, it increased 33%.
- Within subscription revenue, Talend's cloud and big-data subscription revenue rose more than 100% year over year for the 10th consecutive quarter. Cloud subscriptions allow customers to integrate Talend's data integration and API services into their own apps, helping, for example, Domino's Pizza to track delivery status over a mobile phone or Air France to offer personalized travel experiences to frequent fliers. Cloud and big-data subscriptions together made up about 25% of the company's newly reported annual recurring revenue for the fourth quarter.
- Total annualized recurring revenue was $198.1 million for the trailing 12 months. It was up 33% year over year.
- Total customer count grew to over 3,000. This includes new customers from Talend's recent acquisition of Stitch.
- Professional services revenue grew 14% to $7.2 million.
- Talend's dollar-based net expansion rate, which compares this year's sales at existing customers to last year's, was 120% in constant currency.
What management had to say
CEO Mike Tuchen focused on the company's strong outlook on gaining share in the cloud computing market:
As we scale our business, we are increasingly focused on the cloud opportunity and have expanded our go to market capabilities with the addition of a self-service, frictionless channel to land new cloud customers. We believe we are entering 2019 well positioned to capture an increasing share of the data integration market.
Talend has quite a large market opportunity to grow into. IDC predicts the market for cloud data integration and integrity software will grow 30% per year and reach $2.3 billion by 2022. Talend had $200 million of total annual revenue last year, which represented roughly a quarter of its addressable market. The company has captured a significant share already, but still has plenty of room to expand in a market that is also growing quickly. Last quarter's acquisition of Stitch shows that it's also willing to invest in acquisitions to expand its presence.
However, the company also faces several challenges. First and foremost, it will need to find a new sales leader after VP of Worldwide Sales Brad Stratton abruptly and unexpectedly resigned in January. Its cloud-based offerings (which bring in less revenue up front) are increasingly forming a larger share of its sales, and are replacing its more profitable on-premise deployments such as Hadoop. And management expects foreign exchange rates to work against the company in the upcoming year.
All of these challenges have led management to guide for only $250 million of revenue in fiscal 2019, which would mark approximately 25% growth. That forecast would be significantly lower than the company's 34% growth rate in 2018, or its 40% growth in 2017.
While it's possible that management is just being conservative in its estimate, investors should be aware that Talend's cloud-based sales are to some extent cannibalizing its more profitable on-premise deployments.