Poor Cloudera (CLDR) has been beaten up badly during the last few years. Shares are down by half since the company's public debut in early 2017, and that's even after a recent relief rally in the aftermath of a poor start to the fiscal year.
However, there have been some big changes lately -- both internally at Cloudera, and externally for the greater data analytics industry. A corner may have been turned for this beleaguered stock, but it's a little early to call it for certain.
What happened in Q2
Revenue in the second quarter of fiscal 2020 (the three months ended July 31, 2019) was $196.7 million, well above management's forecast of $180 to $183 million. Annualized recurring revenue was up 16% to $682 million, much better than feared it would be but still shy of the company's goal to get back to 20% or better growth.
The real pain point the last few years -- skyrocketing expenses -- didn't get any better. They increased by 107% from a year ago, although that figure does include the merger with Hortonworks in the autumn of 2018. It also includes a whopping $61.7 million in share-based compensation, a noncash expense equal to 31% of total revenue. Existing shareholders are getting their stake in the company diluted like crazy at that rate. Yikes.
Outlook for the full fiscal year 2020 is annualized recurring revenue of $685 to $720 million, as much as a 6% increase over the figure just posted. So at least Cloudera is growing; but those expenses are the real killer unless the company can get some serious pep back in its top-line step.
A new go-forward strategy?
Cloudera just did an initial rollout of its new hybrid-cloud data analytics Cloud Data Platform -- combining the best of what it offered on its on-premises data center software with what it got from Hortonworks. Cloudera is a little behind the curve here, but updating its capabilities for what its customers need should help.
It's a long-awaited move in the right direction, but Cloudera is getting some big-name competition in the data analytics space. Earlier in the year, there were the big acquisitions by Google's Alphabet and salesforce.com of Looker and Tableau, respectively; and there is, of course, the continued expansion of Splunk and Alteryx, both of which are handily outpacing Cloudera's comparatively pedestrian growth. In other words, there's no guarantee customers will come back to Cloudera with other options out there. For the time being, I think high-growth technology investors can do better than Cloudera.
Cloudera knows this, and so it did some shopping of its own. It recently announced the purchase of cloud-native and AI-driven analytics company Arcadia Data for an undisclosed sum. Time will tell if Arcadia and the new cloud platform provide the juice that revenue needs to get back to the stated 20% growth target, but the beat in Q2 is an early sign it might.
As for internal changes, interim CEO Martin Cole says keeping expenses in check is among his top priorities. That's no doubt part of what recent major shareholder Carl Icahn is after as well. Cloudera appointed two new members to its board of directors from Icahn's camp, expanding the total seats to 10 -- with an 11th addition possible once it settles on a permanent CEO. Big changes in leadership and strategy could thus be on the way.
Things are looking better for the moment at Cloudera, and the 40% or so rally between the Q1 and Q2 reports are indicating as much -- though much of that is likely due to Icahn accumulating 18% of the company's outstanding stock. For this rally to have some real legs, though, revenue is going to need to grow more, and expenses need a serious haircut. It's too soon to tell.