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Was Needham Conservative in Calling for Cloudera Inc (NYSE:CLDR) Shares to Double?

Cloudera Inc (NYSE:CLDR) has been an interesting ride for those on board since the spectacular merger with Hortonworks (HDP) – “spectacular” in the sense of “being a spectacle”, like a high-profile celebrity scandal, a bad car accident, or major wardrobe malfunction during the halftime show of the Superbowl.

We profiled the piece back in mid-October, suggesting that, although it continued to look like an exciting play, we believed there was more downside to come. And more there was: the stock proceeded to dump down another 17% in coming days. However, that move took it down to test the stock’s post-IPO lows, where it found clear accumulation in a strong-handed bid and has run higher in recent days. Note, our view was in part due to a sense that we were looking for more bleeding out of high-growth tech assets as a broad market phenomenon. And this stock seemed a likely place for bears to smoke out weak-handed momentum money. Corrections like this aren’t over until such money is wrung out of such places.

Cloudera Inc (NYSE:CLDR) shares also just got the benefit of a relatively striking sell-side upgrade from Needham to kick off the week. And it was an interesting note that we cannot disagree with looking ahead, particularly if we see a run back into risk assets with leading-edge tech as a priority.

While we did pour a little cold water on the story in our last piece, we also noted that the company had huge promise and tremendous in-house talent – talent that would be powerfully augmented by bringing in the HDP team.

There is no question that the combined entity – now with market-leading talent in both IoT and AI – will be able to capitalize on its assets provided we return to an environment that rewards cloud technology.

The analyst note featured as follows: “Needham upgrades CLDR to Strong Buy from Buy and raises their tgt to $31 from $23. They recently conducted a proforma analysis of the combined CLDR and HDP entity. In their view, the combined financials of the new firm illustrate a path to accelerating operating leverage that would have been longer on a stand-alone basis. They reiterate the deal’s strategic value given the strength of each vendor around separate use-cases (IoT vs. AI/ML) and how some customers have displayed a strong preference for a single vendor. In addition, they conducted absolute (i.e. DCF) and relative valuation analyses (i.e. EV/revenue multiples of comparables). Despite clear synergies, their analyses demonstrate a large valuation gap (peers trade at 9.3x EV/Revenue CY18 vs. “new” CLDR’s current 4.1x) that leads to the upgrade.”

In other words, the Needham note suggests a raised target calling for basically a doubling from here. We would think that may even be a bit conservative, but the degree to which that last conclusion has merit will likely come down to the broad market context more than anything else. This is the type of stock that can really get juiced on an animal spirits run back into cloud, IoT, and AI/ML tech.


From the Top Down

Cloudera Inc (NYSE:CLDR), as noted, promulgates itself as a company that provides platform for machine learning and analytics in the United States, Europe, and Asia.

The company operates through two segments, Subscription and Services. Its platform delivers an integrated suite of capabilities for data management, machine learning, and analytics to customers for transforming their businesses.

The company provides Cloudera Enterprise Data Hub that allows companies to execute various analytic functions against a shared set of governed and secures data in public and private clouds, and data centers; Cloudera Data Science and Engineering enables users to streamline, simplify, and scale big data processing; Cloudera Operational DB that enables stream processing and real-time analytics on continuously changing data; Cloudera Analytic DB optimizes enterprise data warehouses; and Cloudera Essentials.

It also offers Cloudera Altus, a platform-as-a-service offering; Cloudera Data Science Workbench that enables self-service data science for the enterprise; Cloudera Fast Forward Labs, which delivers applied research in machine learning and artificial intelligence to its customers; and Cloudera SDX, a modular software framework that enables its customers to have a shared data experience. In addition, the company provides technical support, professional, and training services.

It serves corporate enterprises and public sector organizations primarily through its direct sales force. The company has a strategic partnership with Intel Corporation.

Cloudera Inc (NYSE:CLDR) pulled in sales of $110.3M in its last reported quarterly financials, representing top line growth of 22.8%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($378.4M against $301.5M).

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