Hortonworks Downgraded By Goldman Sachs On Lofty Estimates

Goldman Sachs’ Jesse Hulsing believes there are risks to both the near-term estimates and long-term growth profile of Hortonworks Inc HDP, with 20 percent downside risk to the stock valuation.

Hulsing downgraded the rating on the company from Buy to Sell, while lowering the price target from $13 to $7.

Reasons For Downgrade

“Our initial Buy thesis of ongoing Hadoop adoption sustaining growth and improved efficiency due to a higher mix of expansions has been wrong,” the analyst mentioned.

Hulsing expects Hortonworks to underperform Goldman Sachs’ Emerging Software Attractive coverage.

The stock has declined 57 percent since mid-December 2015, as compared to the 9 percent rise in the Russell 2000.

Related Link: Talend Turns Favorable At Goldman Sachs

Multiple Risks

Hulsing expects risk for the company from two factors. Firstly, the analyst believes “the movement of analytics workloads to the cloud is beginning to inflect.”

“This is likely to increase competition for new analytics workloads from cloud services vendors and could challenge HDP's pure open source business model,” according to the Goldman Sachs report.

Secondly, the analyst believes the consensus billings forecasts imply a meaningful rebound in headcount productivity, which is a high bar for Hortonworks to achieve. In fact, the recent changes in sales leadership could lead to “incremental disruption to productivity.”

Missing the consensus billings expectations could delay free cash flow breakeven for the company and potentially continue to pressure the stock valuation.

Full ratings data available on Benzinga Pro.