Overnight, Cloudera (CLDR) priced its 15 million share IPO at $15 per share, which was above the expected range of $12-$14 per share. The company raised $225 million from the offering, generating roughly 15.0% more proceeds than it had expected.
Cloudera is a developer of a platform for data management, machine learning, and advanced analytics. Its software is used by enterprises to operate, manage, and move workloads across IT architectures, mixing on-premise and cloud environments. The company says it has pioneered the hybrid open source software development model, or, "HOSS."
This model is based on active participation in the open source data management ecosystem and software development process. To deliver the agility and innovation of open source software to its customers, its platform integrates 26 distinct open source projects, 18 of which were created by its engineers. CLDR believes their HOSS model delivers substantially greater value to customers in managing, operating and securing their data and data architectures.
Additionally, an ecosystem has developed around its platform and many third party developers have standardized on it, building more than 100 industry-specific applications. Included in this ecosystem is a strategic partnership with Intel to optimize Cloudera's software for use with Intel processors and architecture. In fact, back in May 2014, Intel made a $766.5 million investment in CLDR, at a price of $30.92/share. With the offering pricing at $15.00, INTC is going to take quite a hit on that investment.
CLDR offers its platform on a subscription basis and it focuses its selling efforts on the largest 8,000 corporations around the world, as well as large public sector organizations. Its business model is based on a "land and expand" strategy designed to use the initial sale as a foothold to increase revenue per customer by increasing the amount of data and number of use cases each customer runs through the platform. After an initial purchase of the platform, it works with its customers to identify new use cases that can be developed on or moved to the platform.
It offers subscriptions for five editions of its platform, ranging from Cloudera Essentials to Cloudera Enterprise. Other editions are designed to address the most common and critical data challenges enterprises face: Cloudera Data Science for programmatic preparation, predictive modeling and machine learning; Cloudera Real Time for online, streaming and real-time applications; and Cloudera Analytics for business intelligence and SQL analytics.
As of January 31, 2017, it had approximately 500 of the global 8,000 corporations, representing 73% of its total revenue. While it continues to grow its customer base at a fast clip, its customers also continue to expand their usage of the platform. To put that into context, the net expansion rate for its subscription revenue was 142% as of January 31, 2017. In other words, the land and expand approach seems to be working.
Looking at its results for FY17 (ending Jan. 31), revenue increased 57% year/year to $261.0 million. The increase in subscription revenue was primarily attributable to volume driven increases in subscription sales to new and existing customers. Its net expansion rate for the period ended January 31, 2017 was 142%.
Subscription gross margin improved from 74% to 81% while services gross margin improved from 5% to 21%. Excluding the impact of stock-based compensation expense, CLDR expects subscription gross margin to continue to improve.
Moving down the income statement, total expenses increased by 22% to $361.4 million. As a percentage of revenue, though, it decreased to 138% from 178%. Not surprisingly, its largest expense is Sales & Marketing, at $203.2 million, or, 78% of revenue. That is down from 97% in FY16, so, it is moving in the right direction there.
However, despite the revenue growth, pick up in gross margin, operating losses still worsened on a Non-GAAP basis to ($140.3) million from ($137.6) million. This was driven by stock based compensation expense (excluded in Non-GAAP numbers), which was far lower in FY17 ($21.7 million) than FY16 ($63.6 million). On a GAAP basis, its operating loss narrowed to $187.3 million in FY17 from $204.6 million in FY16.