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Is Cloudera Stock a Buy?

By Leo Sun - Apr 1, 2020 at 8:20AM

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Is there any reason to own this cloud underdog when other high-quality stocks are on sale?

Cloudera (CLDR) recently posted its fourth-quarter earnings. The software company's revenue grew 47% annually to $211.7 million, beating estimates by nearly $10 million. It posted a non-GAAP net profit of $0.04 per share, which topped estimates by seven cents and marked an improvement from its loss of $0.15 per share a year ago.

Cloudera expects its revenue to rise 8%-10% annually in the first quarter of 2021, with break-even earnings on a non-GAAP basis. It expects its full-year revenue to rise 8%-11% with non-GAAP earnings of $0.25-$0.29, compared to a loss of $0.13 in fiscal 2020. All those estimates either met or exceeded analysts' forecasts.

Cloudera's guidance was surprisingly confident since many companies either reduced or withdrew their guidance in the wake of the novel coronavirus (COVID-19) pandemic. During the conference call, Cloudera CFO Jim Frankola noted that the coronavirus was "more likely" to impact its services business, which generated just 14% of its revenue during the quarter, rather than its core subscription business, which relies on stable recurring revenue.

So is Cloudera a coronavirus-resistant stock, or is it a weak underdog that will continue to underperform market leaders like Amazon (AMZN -5.14%) or Microsoft (MSFT -3.17%)? Let's dig deeper to find out.

A laptop tethered to a cloud service.

Image source: Getty Images.

What does Cloudera do?

Cloudera offers a wide range of enterprise software for private, hybrid, and public cloud platforms. These products include databases, data processing software, AI and machine learning tools, and data governance tools.

Cloudera's software was originally based on Apache Hadoop, a suite of open-source software utilities that unite large computer networks for data storage and analytics tasks. Cloudera still offers free open-source tools via CDH (Cloudera's Distribution Including Hadoop) and Cloudera Express.

Cloudera's big data crunching capabilities and dependence on open-source software often spark comparisons to Red Hat, which was acquired by IBM (IBM -0.66%) last July. IBM also signed a big data and analytics partnership with Cloudera last year.

Amazon's EMR (Elastic MapReduce) is similar to Cloudera, but it isn't deployed on private clouds. Microsoft offers similar tools in Azure, which can be deployed across private, hybrid, and public clouds. But Cloudera also integrates its platforms into Amazon Web Services (AWS) and Azure -- so customers don't need to tether themselves to the two tech giants' ecosystems.

A businessman accesses a cloud service on a tablet.

Image source: Getty Images.

How fast is Cloudera growing?

Cloudera went public at $15 per share in April 2017. Its revenue growth decelerated significantly in fiscal 2019, but its merger with HortonWorks, which closed at the end of fiscal 2019, boosted its revenue growth in 2020.

Fiscal year

2018

2019

2020

2021 (Estimated)

Revenue Growth (YOY)

41%

29%

65%

8%-11%

Source: Cloudera annual reports.

In addition to HortonWorks, Cloudera acquired smaller companies like Fast Forward Labs, Hyperpilot, and Arcadia Data after its IPO. However, its forecast for 2021 indicates its organic growth rate is less impressive than those of its industry peers. For example, Red Hat's revenue rose 21% in 2018 and 15% in 2019 -- and its acquisitions weren't nearly as aggressive as Cloudera's.

Cloudera's merger with HortonWorks was widely seen as a defensive move against Amazon and Microsoft, but it was also considered a sign of weakness in the shadow of larger competitors, which could bundle similar services into their broader ecosystems. That's troubling, because Cloudera still doesn't have a clear path toward GAAP profitability. Its stock-based compensation expenses surged 88% in 2020 and gobbled up 28% of its revenue, and its cash and equivalents fell 32% to $107.6 million.

Fiscal year

2018

2019

2020

2021 (Estimated)

GAAP Net Loss (Millions)

($385.8)

($192.6)

($336.6)

($186-$198)

Source: Cloudera annual reports.

Cloudera's lack of profits and its cash burn rate suggest that it may need to file a secondary stock or debt offering in the near future. With an enterprise value of just $2.2 billion, Cloudera remains a potential buyout target for bigger tech companies -- but the coronavirus crisis could postpone any offers as companies rein in their spending.

Cloudera's stock is cheap for obvious reasons

Cloudera trades at just 2.5 times its projected sales for 2021, which is a low valuation for a cloud-based software stock. Unfortunately, it's cheap because its growth rate is unimpressive, it faces formidable competitors, and it's burning too much cash.

Amazon and Microsoft are clearly stronger all-around investments, while higher-growth plays like Twilio (TWLO -5.76%) offer stronger growth with wider moats. In short, there's no reason to own Cloudera when other higher-quality stocks were humbled in the recent market sell-off.

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Stocks Mentioned

Cloudera Stock Quote
Cloudera
CLDR
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$141.86 (-0.66%) $0.94
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$256.48 (-3.17%) $-8.41
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$107.40 (-5.14%) $-5.82
Twilio Inc. Stock Quote
Twilio Inc.
TWLO
$91.61 (-5.76%) $-5.60

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