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Ishan Majumdar
Ishan Majumdar
Articles (105)  | Author's Website |

Cloudera: Potential Acquisition Target

After delivering a solid result, the data management and analytics player is up for sale

Mergers and acquisitions across the U.S. market are expected to grow over the coming months with companies available for sale at lower valuations and the increasing need for financing by smaller players to counter the economic impacts of the Covid-19 pandemic.

One of the cloud technology players that is in talks with potential buyers for an acquisition over the coming months is known data management and analytics firm Cloudera, Inc. (NYSE:CLDR). Interestingly, Cloudera’s sector has been one of the few to actually benefit from the pandemic. The company’s stock has appreciated well, but not as much as other cloud peers. It will be interesting to see how the sale process shapes up and the valuation that the company is able to garner during this process.

Company overview

Cloudera is a software player focused on developing platforms for data management, machine learning and advanced analytics. The core purpose of its offerings is to allow companies to operate, manage and move workloads across multiple architectures, mixing on-premises and cloud environments, including all major public cloud infrastructure providers.

Customers can process large amounts of data from a wide variety of sources, including the Internet of Things (IoT), through products offering features such as dynamic data management systems, cognitive/Artificial Intelligence (AI) systems, content analytics software and predictive analytics software. These can be used to effectively serve and market to customers, design connected products and services and reduce risk through greater insight from data.

Cloudera operates through a subscription-based model and also has a services segment. It employs close to 2,723 people and is headquartered in Palo Alto, California.

Recent financial results

Cloudera completed its planned acquisition of the Hortonworks Data Platform in January 2019 and since this acquisition, the company has managed to produce a string of strong results, beating analyst estimates in terms of revenue as well as profitability for four quarters in a row. For the first quarter of the current fiscal year, the company reported revenue of $210.46 million, well above the analyst consensus estimate of $204.91 million. This was a 12% jump over the corresponding quarter of the previous fiscal year and was largely driven by a 21% jump in the subscription revenues, which account for about 90% of the company’s top-line.

Cloudera also witnessed an 11% jump in annual recurring revenue in one of the worst quarters for the global economy. There was a marked rise in the company’s operating margins, and its net loss went down significantly to $55.8 million from $103.8 million in the corresponding quarter of the previous year. The management was able to expand its partnership with Alphabet's (GOOG)(GOOGL) Google Cloud Platform (GCP).

For full fiscal 2021, the management expects total revenue in the range of $825 million to $845 million, with about $745 million to $755 million being subscription-based revenue. The expected operating income for the year is between $85 million and $95 million. The company predicts earnings per share in the range of $0.26 to $0.30.

Potential acquisition

Most of Cloudera’s direct competitors are private companies such as Snowflake and Databricks. Among the listed peers operating in a similar industry as Cloudera are companies like New Relic (NYSE:NEWR), Box (NYSE:BOX), and Nutanix (NASDAQ:NTNX). Cloudera also faces competition from giants like Amazon (AMZN) and Microsoft (NASDAQ:MSFT), whose AWS and Azure cloud platforms also offer data management capabilities.

Given the presence of the two giants in the space, consolidation might take place. There have been consistent reports of Cloudera being up for sale ever since Robert Bearden’s appointment as CEO in early 2020. The company is having talks with several potential buyers, including private equity funds.

Cloudera is expected to be receiving a number of bids from strategic acquirers like IBM (NYSE:IBM) and Microsoft. The company appears to be a good fit for a giant like IBM, which already owns Red Hat and could use the Cloudera Data Platform (CDP) and Public Cloud well. The platform has a reducing churn and fantastic subscription renewal rates, which is an excellent asset that could be valued by strategic as financial buyers.

IBM could do an outright cash deal as the company has close to $12 billion in cash, marketable short-term investments and long-term marketable securities. Cloudera’s institutional investors, led by Carl Icahn (Trades, Portfolio), would likely be looking forward to this deal taking place at a minimum 10% premium over the current market price given the strong future revenue forecasts and the perceived synergies.

It is worth highlighting that Icahn owns more than 15% of Cloudera stock. CEO Robert Bearden’s successful history of M&A activity is also another big plus.

Final thoughts

As we can see in the chart above, Cloudera's stock price has surged by around 141% in the past 12 months. The global data industry is expected to grow at a compounded annual growth rate (CAGR) of 27% until 2025, which implies a huge potential for an analytics provider like Cloudera.

Over and above the solid data management capabilities provided by the company, the CDP remains a critical asset that strategic acquirers will be evaluating during this acquisition. The company’s solution is highly transparent in nature and runs across a wide number of combinations of public and private clouds, which is why it has been witnessing a surge in its private and public cloud users. All these factors make it a compelling acquisition target for strategic and financial buyers alike.

Disclosure: No positions

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About the author:

Ishan Majumdar
I am a qualified Chartered Accountant with a Masters in Management (Grande Ecole) from HEC Paris. I run a proprietary boutique financial advisory firm called Baptista Research (www.baptistaresearch.com) specializing in M&A, corporate advisory, equity research and valuation of listed companies.

I have nearly a decade of experience spread across investment banks, financial advisory firms, investment funds and other corporates in many different geographies, such as France, Spain, India and others. I was a part of the LBO Financing team at BNP Paribas where I worked on deals with a combined enterprise value of over $1 billion. I have also worked in mergers and acquisitions with Credit Agricole CIB and corporate strategy with Groupe Danone SA. Over the years, I have developed a strong specialization in corporate valuations, strategy and financial analysis.

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