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HortonWorks and Red Hat’s Cloud IaaS Focus Pays Off

Posted on Tuesday, May 23rd 2017

According to a research by Zion Market Research, the global Hadoop market was worth $7.69 billion in 2016. It is estimated to grow 50% annually over the next five years to be worth $87.14 billion by 2022. Palo Alto-based Hortonworks (Nasdaq: HDP) used to be a Unicorn in the market till a few years ago. Over the past few years, its fumbled. But, things appear to be looking up for the company.

Hortonworks’ Financials

For the quarter ended March, Hortonworks reported revenues of $55.97 million, growing 35% over the year. It ended the quarter with a loss of $0.50 per share. The market was looking for revenues of $52 million and a loss of $0.52 per share.

By segment, support services revenues grew from $27.63 million a year ago to $42.1 million and professional services revenues were relatively flat at $13.87 million.

The company reported deferred revenues of $198.2 million, growing 7% over the prior quarter 66% over the year.

For the current quarter, Hortonworks forecast revenues of $57 million, in line with the Street’s forecast. For the full year, it expects revenues of $235-$240 million, compared with the market’s expectations of $237.5 million.

Hortonworks’ Growth

Over the past few years, Hortonworks has been focused on helping bring its customer’s data under management for the entire lifecycle. It is ensuring that it is able to meet its customers’ demands when it comes to the three “mega-trends” of cloud computing, Internet-of-Things, and Big Data. As part of this focus, it is enabling solutions that cater to Enterprise Data Warehouse optimization, artificial intelligence, machine learning, and operational services by integrating historical and real-time data with HDP and HDF.

Its proprietary HDF solution addresses the IoT market, and Azure HDInsight and the Hortonworks Data Cloud address the cloud computing market. It also launched the Optimization Solution suite for the development of packaged application solutions.

It recently announced the general availability of the latest upgrade of HDP, which enhances the EDW Optimization Solution by adding capabilities for SQL performance and business intelligence applications. It has improved the security and data science capabilities and delivers the solution on its core multi-tenancy engine.

Within cloud, it has delivered its key capabilities first on Microsoft Azure HDInsight as well as on the Hortonworks Data Cloud for AWS. It has also made HDP’s latest upgrade available on IBM Power Systems so that the joint customers of IBM and Hortonworks are able to benefit from the performance, scalability, and acceleration capabilities of the POWER8 platform for their Hadoop and Spark applications.

Its stock was trading at $12.62 with a market capitalization of $780 million. It touched a 52-week high of $13.76 earlier this month. It has recovered from the 52-week low of $6.42 it had fallen to in October last year. The stock is a far cry from its pre-listing days when in July 2014 it had raised $50 million at a valuation of $1 billion. By the end of 2014, the company lost nearly half of its value and listed on the Nasdaq with a valuation that was reduced to nearly $592 million.

Rival Cloudera, which saw revenues grow to $261 million in 2016, recently had an impressive IPO. It listed on the NYSE at $15 a share under the ticker CLDR. Soon after listing, its price grew 21% to 18.10, translating to a market capitalization of $2.3 billion. Cloudera is trading at a revenue multiple of nine times compared with Hortonworks’s less than three.

Red Hat’s Financials

The focus on cloud is also helping HortonWorks’s rival Red Hat (NYSE: RHT) deliver an impressive performance. For its fourth quarter of the year, Red Hat’s revenues grew 16% over the year to $629 million. Adjusted earnings improved 17.3% over the year to $0.61 per share. Revenue growth was driven by a 17% growth in subscription revenues which grew to $559.6 million. Training & services revenues increased 8.4% to $69.3 million. The market had been looking for revenues of $619 million and an EPS of $0.61.

For the year 2017, Red Hat saw revenues grow 18% to $2.4 billion with subscription revenues increasing 18% to $2.1 billion. Full fiscal year GAAP net income came in at $254 million, or $1.39 per diluted share, compared with $199 million, or $1.07 per diluted share a year ago.

For the current quarter, Red Hat forecast revenues of $643-$650 million, with EPS of $0.52-$0.53. The Street had forecast revenues of $642 million and an EPS of $0.59. Red Hat expects to end the year with revenues of $2.72-$2.76 billion, and EPS of $2.60-$2.64. The Street was looking for revenues of $2.71 billion with an EPS of $2.59 for the year.

Red Hat’s Offerings

Red Hat too is focused on its cloud offerings. Earlier this month, it announced the latest version of its scalable and agile cloud IaaS offering Red Hat OpenStack Platform 11. Based on the OpenStack “Ocata” release, Red Hat OpenStack Platform is able to provide enhanced support for upgrades, new networking capabilities, and improved integration with Red Hat CloudForms for cloud management. It allows operators to create customized profiles for individual services and processes to suit their unique needs and helps improve operation and efficiency by allowing operators to scale and manage the individual services they need at any moment.

The market has been impressed with Red Hat’s cloud focus. After the result announcement, the stock saw five sell-side analyst upgrades with some raising their price targets to $110. Analysts are impressed by Red Hat’s focus on leveraging its existing customer base to cater to the growing cloud-based demands.

Its stock is trading at $86.18 with a market capitalization of $15.32 billion. It touched a 52-week high of $90.01 earlier this month and has recovered from the 52-week low of $68.54 in December last year.

Photo Credit: techmsg/Flickr.com

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