After the close last night, data management platform developer Hortonworks (HDP) issued a press release announcing a significant shake-up to its management team, while also providing an updated outlook for Q2 revenue. Specifically, HDP announced that its President/COO is stepping down, in mutual agreement with the company, and that its current CFO would be taking on the addition role of COO. As for its outlook, the company actually provided upside guidance, seeing Q2 revenue of $58-$59 million versus the $57.2 million Capital IQ Consensus. Despite the improved outlook, the stock is still trading lower by about 7% in pre-market action.
Overview of HDP
For those unfamiliar with the company, here is some further background on HDP. The company, which went public back in December of 2014, develops a data management tool for enterprises called "Hadoop." In essence, HDP can be characterized as a "big data" company. Its goal is to establish Hadoop as the foundational technology of the modern enterprise data architecture.
Hadoop has actually been around for quite some time. It was was originally developed in the early 2000s. Partnering with the Apache Hadoop community, Yahoo led major innovations in the technology to help tackle big data challenges and operate its business at scale. The traditional Hadoop offering (i.e., Hadoop Version 1.x) was largely a batch system that enabled users to manage data at scale, but required siloed computing clusters by application with pre-selected data sets, thus limiting accessibility, interoperability and overall value.
To improve on this early functionality, Hortonworks engineers created the initial architecture for YARN and developed the technology for it within the Apache Hadoop community, leading to the release of YARN in October 2013. This technology advancement transformed Hadoop (i.e., Hadoop Version 2.x) into a platform that allows for multiple ways of interacting with data, including interactive structured query language, or SQL, processing, real-time processing and online data processing, along with its traditional batch data processing.
In a simplistic way, here is how it works: A Hadoop cluster combines commodity servers with local storage and an open source software distribution to create a reliable distributed compute and storage platform for large data sets scalable up to petabytes, or PBs, with thousands of servers or nodes. Its platform is an enterprise-grade data management platform built on a unique distribution of Apache Hadoop and powered by YARN, the next generation computing and resource management framework.
Additional Color on Today's News
The magnitude of the downside reaction to this news event is a bit surprising, given the upside guidance it also provided in the press release. At the mid-point of that revenue guidance, it equates to year/year growth of 34%. That is roughly inline with its growth rates over the past couple of months. It also extends its winning streak versus the topline consensus to four straight quarters.
The question, then is why is the stock selling off sharply this morning. There could be a couple factors at play. First, it is unexpected with the changes seemingly "coming out of the blue." HDP was certainly on a nice run here, both in terms of the stock performance and financial performance. So, naturally, investors may be questioning the timing of such a significant shake up at the top. And with the changes, its CFO, Scott Davidson, will also be taking on additional responsibilities as COO. Perhaps some are wondering whether management is now getting spread too thin.
The other factor simply is, the stock has been hot over the past couple of months, up 40% since early May. With many investors sitting on substantial gains, there is likely some profit taking at play here -- a sort of sell-the-news reaction the guidance.
But, all in all, the action in the stock this morning looks more like a "knee-jerk" type of reaction, rather than some kind of fundamental reset in the stock/company.