Analysts Weigh In On Cloudera's Q2 Earnings

Cloudera Inc CLDR reported Wednesday a better-than-expected loss in its second-quarter results, which impressed investors based on the stock's surge but fell short of turning two Street analysts bullish.

The Analysts

Morgan Stanley's Sanjit Singh maintains an Equal-weight rating on Cloudera with a price target lifted from $17 to $18.

Bank of America's Kash Rangan maintains a Neutral rating with an unchanged $19 price target.

Cloudera's stock was trading higher by 24 percent to $17.86 at time of publication.

Morgan Stanley: Guidance Implies Deceleration

Cloudera showed encouraging metrics, notably:

• A 33-percent year-over-year increase in new customer ARR (annual recurring revenue) to $87,000.
• Subscription gross margins improved by more than 2 percent.
• Sales and marketing expenses rose by just 6 percent, which implies lower customer acquisition costs.

Less encouraging metrics overshadow the positive developments in the quarter, most notably continued deceleration in the business, Singh said in a note. Specifically, subscription revenue growth in the second quarter slowed from 33 percent year-over-year in the first quarter to 26 percent and current billings slowed from 25 percent last quarter to 20 percent.

Related Link: Citigroup Expands Big Data Coverage, Names Alteryx, Tableau Software, Talend As Top Picks

While management did lift 2019 subscription revenue guidance from $370-$375 million to $372-$377 million, the revised guidance at the midpoint of $2 million doesn't compare favorably to the $2.6 million subscription revenue beat in the second quarter.

Bottom line, Singh said Cloudera's report certainly shows "signs of progress" but the company needs to show multiple encouraging quarters before investors can have confidence in a durable growth profile.

Bank Of America: Early Stages Of Changes

Cloudera's strategy to better target "higher quality customers" that come with higher contract sizes and overall greater lifetime value remains in the early stages, Rangan said in a note. Some of the early signs include:

• Thirty-percent increase in new deal size.
• The addition of 69 customers of at least $1 million versus 40 last year.
• 568 customers of at least $100,000.
• A commitment to focus on the 5,000 biggest global companies instead of the 8,000 biggest companies.
• The conclusion of a search for a new global head of sales.

The many necessary changes needed to fully implement the strategy will take several quarters with many more quarters needed before consistent results are seen, the analyst said. As such, a bullish stance on the stock can't be warranted at this time based on the "slew of go to market changes being implemented." The $19 price target is based on a 6.7 times multiple on 2019 estimated EV/recurring revenues, which is in-line with fellow SaaS peers who are growing their subscription revenues at around 20 percent.