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Talend’s Focus on the Cloud Fails to Raise the Stock

Posted on Tuesday, Sep 10th 2019

According to a report by MarketsandMarkets, the global cloud integration market is estimated to grow 13.7% annually to $12.24 billion by the year 2022. The growth in the industry is estimated to be driven by the growing demand for tools that can integrate several heterogeneous data sources and the rise of cloud computing that is resulting in the need for effective data integration tools and practices. Open source integration software vendor Talend (Nasdaq: TLND) is a leading player in this market that continues to tap into cloud-based offerings.

Talend’s Financials

For the second quarter, Talend’s revenues grew 22% over the year to $60.6 million, ahead of the market’s forecast of $58.85 million. Net loss was $6.4 million compared to a net loss of $3.6 million a year ago. Adjusted net loss was $0.21 per share, significantly better than the Street’s estimated net loss of $0.32 per share.

By segment, subscription revenues grew 26% to $52.9 million. Professional services fell 0.5% to $7.7 million.

Among other key metrics, annual recurring revenue (ARR) grew 28% to $218 million. Its dollar-based net expansion rate was 118% at constant currencies, implying that renewing clients are spending more with their refreshed contracts. Cloud revenue more than doubled for the 12th consecutive quarter and accounted for 43% of new ARR. Total customer count exceeded 3,500 this quarter, including more than 1,500 cloud customers. Enterprise customers grew to 525 and generated 68% of its total subscription revenue.

For the third quarter, Talend forecast revenues of $61.5-$62.5 million with a loss of $0.25-$0.22 per share. The market was looking for revenues of $63.13 million with a loss of $0.19 per share. Talend expects to end the current year with revenues of $246-$248 million and a loss of $0.98-$0.92 per share. The outlook was weaker than the market’s forecast of revenues of $248.45 million and a loss of $0.97 per share.

Talend attributed the miss in the outlook to the cautious outlook in the EMEA markets and a short-term impact of continued push into the cloud driven subscription-based model. The transition has resulted in lower professional services revenue.

Talend’s Growth Focus

Talend continues to expand its product offerings. Last November, it had announced the $60 million acquisition of Stitch, a provider of a self-serve cloud data integration service. Stitch offered a simple, powerful service for developers to help them connect all their data sources from databases, including MongoDB and MySQL, to SaaS tools like Salesforce and Zendesk. It replicated the data into the organization’s warehouse to allow the developers to provision data to analysts and other team members.

Talend already offered a lightweight ETL (extract, transform, and load) for its enterprise-strength ETL tool, but it did not have an entry-level offering like the one that Stitch offered. The acquisition has helped Talend expand its customer base. During the recent management call, Talend acknowledged that Stitch was helping Talend attract new customers and is also becoming a good platform for Talend to upsell its cloud-based products.

Talend has also expanded its reach within its ecosystem partners by introducing the Stitch Data Loader on the AWS marketplace. As a new SaaS subscription offering available on AWS Marketplace, Stitch Data Loader will provide an easy way for users to get data into a fast, simple, and secure cloud data warehouse like Amazon Redshift or a cloud data lake like Amazon Simple Storage Service.

Talend recently released a new technology alliance program to accelerate cloud data deployments for customers. The program helps provide partners with access to integration toolkits, product licenses for testing and demonstration, marketing assistance and technical and development support. Talend aims to help partners accelerate the creation of value-added data integrations and connectors for customers.

Despite Talend’s strategic actions, its stock hasn’t moved favorably during the last year. Analysts peg the stock decline on the issue of its inability to drive a positive free cash flow. For the current year, Talend now expects a free cash flow of approximately $15 million negative for the year compared with previous year’s $5 million negative. The biggest driver of the increased free cash flow burn is the impact of shortening contract duration.

Its stock is currently trading at $38.71 with a market cap of $1.2 billion. The stock hit a 52-week low of $31.14 in December last year. Its 52-week high was $73.52 in September last year.

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