Blog Article | Rohit Kulkarni
Posted: April 20, 2017

The Outlook for Cloudera IPO: Cloudy with a Chance of Rain

Over the past week, Cloudera’s upcoming IPO has caused much hand-wringing amidst speculation that it will be a down round – about 60 percent lower than its last private valuation in 2014.

As the largest enterprise software unicorn pursuing an IPO in 2017 and the sixth private tech growth IPO of the year, a down-round IPO raises a couple of key questions for investors. First, what does this mean for the IPO market in general? Second, why invest in Cloudera now?

What does it say about the broader IPO market? The headline is that a down-round IPO isn’t the end of the road for VC-backed IPOs in 2017. We have seen such IPOs in the past. Square, Box, and New Relic all went public below their private valuations, but today all three are trading above their IPO prices. Apigee also pursued a down-round IPO and was eventually acquired by Google at a solid premium. We estimate that roughly one in six VC-backed tech companies that go public do so with a haircut to the private valuation. Thus, a valuation reset approved by a relatively efficient public market could be a healthy sign for the company and the overall VC ecosystem.

A “glass half empty” interpretation is that there might be more such valuation resets in the pipeline, particularly for those unicorns that raised mega-rounds from “tourist” investors during 2014–2015. Nonetheless, we continue to believe that the IPO window is wide open, given the recent uptick in both offerings and valuations. In fact, we’d argue that a lukewarm reception to Cloudera’s down-round IPO could drive other VC-backed unicorns and CEOs to test the public waters soon!

Why invest in Cloudera now? Investors certainly have plenty of reasons to be cautious, including competition from public and private cloud companies, profitability outlook, and, of course, the most important factor: the valuation. However, we believe that long-term investors can make a credible case for investing in Cloudera’s IPO at a roughly $2 billion valuation, for the following reasons:

  • Cloudera is larger and faster-growing than its counterpart, Hortonworks (HDP). We think size does matter in the ongoing cloud wars.
  • Cloudera is less reliant on open-source software than its counterpart, which should help address the bearish concern about the lack of monetization/differentiation potential of open-source software.
  • Cloudera has Intel’s strategic support and distribution capabilities behind it, which should help Cloudera’s operating leverage outlook, particularly with overseas sales and marketing.
  • Cloudera operates at the intersection of several secular trends (Cloud, Big Data, IoT). If you believe large enterprises will feel a growing need for an independent company that operates on multiple cloud platforms (AWS, Azure, GCP) and remains location-agnostic (public cloud, private cloud, and on-premise), then Cloudera could be one way to play that trend.
  • We think Cloudera’s sector is ripe for consolidation, which means that Cloudera, Hortonworks, and MapR are potential targets. Large tech companies including Microsoft, Amazon, Google, IBM, and Cisco have big aspirations in this space. Furthermore, there is always a chance that Intel will expand its strategic relationship and ownership proportion with Cloudera.

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Rohit Kulkarni
Article Author

Rohit Kulkarni

Rohit is the Managing Director, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, Rohit was a Vice President, Senior Analyst at RBC Capital Markets.

Learn more about Cloudera with SharesPost’s interactive waterfall charts, enterprise value data and the latest company news.

PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES

This blog post is being published by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management, LLC., an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc. SP Investments Management, LLC is the investment manager of the SharesPost 100 Fund, a Registered Investment Company, and other funds. These entities and funds (hereafter “SharesPost”) does, seeks to do business with and owns the companies covered in this research report. Consequently, investors should be aware that SharesPost has a conflict of interest that could affect the objectivity of this report.

None of the information contained in this blog post represents an offer to buy or sell or a solicitation of an offer to buy or sell any security and no buy or sell recommendation should be implied, nor does it constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation, do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax or transactional advisory services.

Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that such company has endorsed, supports or otherwise participates with SharesPost. Company “thesis” are the opinions of SharesPost and are not recommendations to buy, sell or hold any security of such company.

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