- The Hadoop market leader, Cloudera, is expected to go public this year.
- Cloudera increased revenues by 68% annually and accounted for more than 50% of the market revenues.
- Cloudera is valued four times higher than its competitors, reflecting slightly high P/S ratio for the company.
- Underpricing its IPO shares, attracting the attention of the market, and Cloudera’s unique positioning make this IPO one to watch in 2015.
Hadoop's solutions developer, Cloudera, is reportedly planning to go public this year. Cloudera is one of the three leaders in the Hadoop development and distribution market, along with Hortonworks (NASDAQ:HDP) and MapR. Cloudera was founded by engineers from Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB), and Yahoo (NASDAQ:YHOO) (from the same division out of which Hortonworks spun later) that saw the opportunity in this emerging market and decided to monetize Hadoop services enterprises. Hadoop or Apache Hadoop, in its formal name, is an open-source framework that optimizes data processing and enables organizations to utilize their databases better and save storage costs. Hadoop is a niche market within the big data sector that started as an internal development project at Yahoo and gained more and more attention as more players joined this market and big money began to flow in.
As Hadoop is an open source framework, players in this market can only provide peripheral services or additional software to accompany it. Cloudera has taken an aggressive approach to generating revenues in the open source market compared to its rival, Hortonworks. Cloudera offers a proprietary Hadoop-based platform, data analytics tools, and various add-ons to the Hadoop framework while Hortonworks decided to focus on the open-source capabilities of Hadoop and provide peripheral services to support them. According to Cloudera’s CEO, Tom Reilly, Cloudera’s strategic decision to provide proprietary solutions in an open-source market paid off when Cloudera earned more than $100 million in revenues in 2014, which is more than double the revenues of Hortonworks and MapR.
Funding and Principle Shareholders
The unique strategy Cloudera adopted and the high potential of the Hadoop market attract many tech giants to invest in Hadoop and Cloudera. In terms of valuation, Cloudera is the biggest pure play Hadoop developer, with a valuation of $4.1 billion as of March 2014, while Hortonworks and MapR are valued at around $1 billion.
As our lives become more digital, larger amounts of data are gathered every day, stored and analyzed by various companies. The emergence of the Internet of Things (IoT) intensifies this trend and drives higher demand for services of big data firms that assist enterprises to better store, gather, analyze, and understand data. There is high potential to attract tech giants to this market. Impressive names like In-Q-Tel, the U.S. intelligence venture arm, Intel Capital, and Google Ventures are among the investors in Cloudera. Intel Capital invested $740 million to buy 18% of the company’s shares in series F, just two weeks after Google Venture and T. Rowe Price invested $160 million in the company. Such a large stake by Intel, tougher with the other leading tech enterprises and VCs, highlights the importance the chipmaker sees in the Hadoop market and its belief that Cloudera could unlock this market potential.
Cloudera Revenue and Valuation
Cloudera’s revenue and financial figures are still vague as the company has not filed its S-1 yet and keeps these numbers confidential. However, a few public interviews, press releases, and company events helped to shed some light on the company’s revenues growth. As shown in chart 2 below, Cloudera has generated around $100 million in 2014, which is double the amount Hortonworks and MapR produced that year. Cloudera’s aggressive strategy compared to its competitors seems to have paid off as the company has accounted for more than 50% of the Hadoop development and distribution market (in revenue terms), while MapR generated a little more than Hortonworks each year. Cloudera is increasing revenue at a rapid pace of 68% annually; however, Cloudera’s latest funding round from Intel and Google valued the company at $4.1 billion and reflected a steep 41 P/S ratio for the company.
Possible CLoudera IPO Price Range
As mentioned above, Series F funding reflected a 41 P/S ratio for Cloudera, which is much higher than Hortonworks' 28 P/S ratio and greater than other big data players like Splunk (NASDAQ:SPLK), which has a P/S of 18, or Tableau (NYSE:DATA), with 16. As the Series F share price of $30.9 reflects a very high and unattractive P/S ratio, Cloudera will have to discount its share price to offer a more attractive upside. A discount in the range of 20% to 30% will provide an excellent buying opportunity for IPO investors and will still reflect some premium compared to Hortonworks' IPO price of $16. That discount range indicates a Cloudera share price of $21.6 to $24.7. This strategy has been known to work in the big data sector. In Hortonworks’ case, a similar underpricing strategy yielded a 65% return for investors on the first day of trading and 48% for New Relic (NYSE:NEWR) on its first day of trading, thus suggesting an attractive opportunity in case Cloudera chooses to underprice its IPO shares.
The Hadoop developer and distributor Cloudera is expected to go public later this year. The company accounts for more than 50% of the Hadoop market (in revenue terms) and presents an impressive annual revenue growth rate of 68%. Cloudera’s $4.1 billion valuation reflects a 41 P/S ratio for the company and will probably force it to underprice its IPO shares in the range of 20% to 30%. The underpricing strategy success in Hortonworks’ and New Relic’s cases, the attention this market attracts, and Cloudera’s leadership position make it reasonable to assume that this IPO will attract much attention and provide a decent upside on the IPO day.
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