Cloudera To Gain From Shift To Cloud?

After rallying nearly 61% since the price seen on March 23, we believe Cloudera’s stock (NYSE: CLDR) has moderate upside left. The stock has rallied from $7 to $11 gaining more than the broader S&P 500 index, which moved 49%. One of the reasons for the recovery was the Fed’s multi-billion dollar stimulus package announced on March 23rd which lifted market sentiments. Cloudera, which provides enterprise data cloud applications and has been a leader in data management and analytics software, saw its stock recover to the pre-Covid peak around early June as the company benefited from the shift to the Cloud due to the Covid-19 pandemic. Further, remote working environments have placed heightened importance on data, data analysis, and data security, which has helped Cloudera’s revenues. We expect revenue growth to continue as more and more organizations are shifting toward the cloud.

The company has seen strong revenue growth over recent years, while its P/S multiple has fallen. We believe the stock is likely to see moderate upside after the recent rally and the potential weakness from a recession driven by the Covid outbreak. Our dashboard What Factors Drove -39% Change in Cloudera Stock between FY 2018 and now? has the underlying numbers.

Some of this decline over the last two years has been offset by roughly 113% growth seen in Cloudera’s revenues from FY 2018 to FY 2020 (ended January 2020). The revenue per share (RPS) during this period saw a -13.3% decrease as the number of shares outstanding saw a high rise of 146%. Further, the Net Income Margin has improved vastly from -99% in FY 2018 to -42% in FY 2020. 

Cloudera’s P/S multiple fell from 5.6x in FY 2018 to around 3.6x in Dec 2019. While this key metric is up to 3.9x now, as organizations shift to the cloud after the Covid-19 outbreak.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Due to a shift toward cloud migration, Cloudera revenue of $214 million, was up by 9% y-o-y for Q2 2021 (ended July 2020) with subscription revenues up by 17%. Operating loss improved vastly and was recorded at $36.5 million (-17% of revenues), compared to an operating loss of $89.1 million (-45% of revenues) in the same period last year.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.  

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