Cloudera (Pending:CLDR) filed an S-1 with the Securities and Exchange Commission for its initial public offering. The company intends to offer 15 million shares at a price range of $12 to $14. It has an additional 2,250,000 shares over-allotted as an option for its underwriters. The underwriters for the offering are Morgan Stanley, J.P. Morgan, Allen & Company LLC, BofA Merrill Lynch, Citigroup, Deutsche Bank Securities, Stifel, JMP Securities and Raymond James.
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Business overview
Cloudera is based in Palo Alto, California and was founded in 2008. It pioneered its open-source platform, Hadoop, which is used by 18 percent of the global 8000 companies in the cloud. The company's platform takes complex data problems, breaks them down into many smaller pieces and then integrates them into a whole to arrive at fast answers to complex issues.
In May 2014, Intel (Nasdaq:INTC) invested $766 million in Cloudera at a price of $30.92 per share, taking a 22 percent stake. Since the high end of its marketed price range for its IPO is $14 per share, this means that Intel's investment has dropped in value by 56 percent to around $348 million at the upper end of the price range.
Executive management overview
Thomas J. Reilly has served as the chief executive officer and as a member of the board of directors of Cloudera since June 2013. Prior to that, he worked as a vice president of enterprise security for Hewlett-Packard Company from Nov. 2010 to April 2012 and as the CEO of Arcsight Inc. from Dec. 2006 to May 2011. He has a Bachelor of Science in mechanical engineering from the University of California, Berkeley.
Michael A. Olson is a co-founder of the company. He served as its CEO from its founding in Aug. 2008 until June 2013. He currently serves as Cloudera's chief strategy officer and as the chairman of the board of directors. He has held executive-level positions at several technology companies since 1998. Olson holds a Bachelor of Arts in computer science and a Master of Science in computer science and electrical engineering from the University of California, Berkeley.
Financial highlights and risks
For the year that ended on Jan. 31, 2017, Cloudera had total revenues of $261,026,000, gross profits of $174,038,000 and net losses of $187,317,000. For the year that ended on Jan. 31, 2016, the company reported total revenues of $166,048,000, gross profits of $90,685,000 and a net loss of $203,143,000.
Among its risk factors, Cloudera states that it has a history of losses and may not become profitable. It also reports that if the market for its data management software develops more slowly than the company expects, its operations could be harmed. The company plans to use its proceeds for additional capital and for general corporate purposes.
Competition
The company faces competition from much larger players such as Amazon (Nasdaq:AMZN). Its primary competitor is Hortonworks (Nasdaq:HDP), which went public in Dec. 2014. After going public, Hortonworks' shares fell by 33 percent, presenting a cautionary tale for investors.
If Cloudera prices at the midpoint of its proposed range, it will have a P/S of 8.43x. This is well above the P/S of Hortonworks (3.1) and the industry average of 5.4.
Conclusion: Consider Holding Off
Cloudera is an innovative company, but it does not appear that it will become profitable anytime in the near future.
We recommend that investors wait before investing in this IPO as we fear it may move in a similar direction of Hortonworks.
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