Cloudera Might Make a Cheap Takeover Target, to The Right Buyer

Speculators love chasing tales from the rumor mill. After all, buyouts and mergers can translate to quick profits. They can also translate to big losses. The rumor mill from Tuesday included big trading action in shares of Cloudera, Inc. (NYSE: CLDR).

A report from Bloomberg was issued noting that private firms have expressed interest in acquiring the company as it has been working with an advisor. Whether this would be a club deal or a competitive deal, as well as who the exact buyers would be, remains unknown. Hence, the rumor mill.

Cloudera shares were briefly halted after the report, and the it’s definitely worth considering that Carl Icahn holds a 17.7% stake here. The big issue is what this company might be worth in a buyout, and why there would be interest.

The enterprise software company has a market cap of close to $3.7 billion, even after this news pop, but last year it acquired Hortonworks in an all-stock acquisition that was valued closer to $5.2 billion at the time. Despite the rush to anything winning in the cloud, and despite the move into profitability expected this year and growth in 2021, the current market valuation is as if the Hortonworks deal never even took place.

With revenues of $794 million in 2019, Refinitiv has the consensus estimates as $840 million in 2020 (up 6%) and over $920 million in 2021 (up over 9%). Refinitiv also seen last year’s -$0.13 in adjusted earnings per share growing to $0.26 EPS in 2020 and then to $0.42 EPS in 2021. That’s not shabby considering the COVID-19 pandemic and a the recession.

Cloudera sounds like it should be in the sweet spot of the new economy due to enterprise software and cloud. It offers data analytics and management suites and it sells licenses (subscriptions). Its Cloudera Enterprise Data Hub allows companies to operate in public and private clouds and in data centers. Its Cloudera Data Warehouse offers low-latency (zero query) wait times, as well as targets lower IT spending and self-service analytics. Other products are in machine learning and datacenters, and the company targets a very broad spectrum of industries for its customer base.

While Cloudera sounds like it is in the right sectors now, the reality is that its shares were punished when it recently reported earnings. It exceeded estimates for the prior quarter ad showed that subscription revenue was up 21% while annualized recurring revenue was up 11%. The real issue it ran into was that 2020 guidance was moved lower to a range of $825 million to $845 million from a prior forecast of $860 million to $880 million with revenues expected to be about 2% to 3% lower than estimates in the current quarter.

When the company reported earnings its shares fell from closer to $12.50 down to about $10.00. The big question now is whether or not there is value in a sale if the company is having a hard time meeting expectations when it should be in the sweet spot of the business world today.

Many other cloud and hybrid cloud companies have been finding buyers or they are valued at nose-bleed levels due to expectations of limitless growth. That said, there just cannot be room for every single one of these companies in every facet of the business and enterprise market.

A private equity merger might make for a good fit, but Cloudera might get a better deal from a strategic buyer that can integrate and build upon it while growing its own products and services in the mix. Private equity buyers are sometimes able to use companies with a portfolio approach like this in technology and software, but they tend to be financial buyers more than anything else.

What was also worth noting here was that Refinitiv’s consensus analyst target price was $12.21, more or less in line with its $12.12 share price after more than a 19% gain. Cloudera also came public at $15.00 per share back in 2017. its highest analyst target price was last seen at $15.00 from Morgan Stanley, and Zacks had been very bullish back in March during the rough patch in the market.

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