Cloudera Inc. beat revenue and earnings expectations for its fiscal 2019 first quarter, but failed to raise full-year expectations that it lowered in April, triggering a 40 percent drop in its stock price that day.

It wasn’t nearly this bad this time, but investors had clearly hoped the news would be better. In after-hours trading, they initially bid shares of Cloudera stock down by more than 6 percent. The price later recovered somewhat and was down about 3 percent later.

The good news was that total revenue rose 29 percent from a year ago, to $102.7 million. Subscription revenue grew 33 percent, to $85.9 million. Subscriptions represented 84 percent of total revenue, up from 81 percent in the first quarter of fiscal 2018. The company’s net loss of 17 cents per share was a penny better than consensus estimates of 18 cents.

However, the company forecast that growth will slow to 20 percent in the fiscal second quarter and it reaffirmed its guidance of full-year revenues of between $435 and $445 million, or roughly in line with estimates.

The company also failed to deliver any upside surprises in its second-quarter revenue forecast of of $107 million to $108 million, which was in line with analyst expectations. Full-year operating cash flow is expected to be between negative $40 million and negative $35 million, a bad sign in a market that’s showing growing signs of price competition.

“I suspect Cloudera is being roiled by shareholders who hoped the changes the company implemented in the wake of its first-quarter earnings surprise would already have borne fruit,” said Charles King, principal analyst at Pund-IT Inc. “For those folks, Cloudera’s beating the expected loss by a penny likely looked like a sign of continuing weakness. It may not be a fair judgment but fair isn’t something commercial markets are known for.”

The onetime big data darling, which shocked the market four years ago when it raised $900 million in funding from investors that included Intel Corp., has struggled to move its product portfolio quickly to the cloud and expand its customer base beyond a relatively limited cohort of large enterprises. It has also come under increasing pressure from low-cost open-source alternatives. Cloudera’s 29 percent first-quarter revenue growth falls short of the 41 percent growth competitor Hortonworks Inc. reported in April.

Low-growth business?

“What jumped out from the [first-quarter] numbers was the softening outlook going forward, with net losses lingering, subscription revenue growth markedly decelerating and operating cash flow remaining in negative territory,” wrote James Kobielus, lead analyst at Wikibon, a SiliconANGLE sister company. What’s more, “the era with which Cloudera is most closely linked in the industry mind — Hadoop-based big data analytics — is starting to resemble a low-growth legacy business.”

On the company’s earnings call, executives attempted to hammer home the message that its new “land and expand” sales strategy, leadership changes in its cloud business and re-invigorate focus on cloud and data science will take time to show results. The company said its installed base is stable, with 539 customers spending more than $100,000 annually, an increase of 38 percent for the quarter. “This multiquarter transition is under way and proceeding as expected,” said Chief Executive Tom Reilly (pictured). “It will take time for the bookings to become evident, but every day we are making progress.”

Executives said the company’s strength in on-premises big data deployments with extensions into the cloud better reflects the reality of customer needs. However, Reilly admitted that “in the cloud, our win rates are not as strong” as they are in on-premises sales scenarios. “When we compete in the cloud we have so many advantages,” he said. “Our No. 1 disadvantage is awareness.”

Executives also deflected questions about whether Cloudera’s proprietary offerings are too expensive compared with open-source competitors. “When we compete in the cloud, we’re not losing on price,” Reilly said. “Frankly, we’re able to get a premium in the cloud because of capabilities like security, metadata management and multicloud capability. Not having cloud lock-in is an easy sell for us.”

Cloudera’s move to the cloud has come haltingly and with some apparent reluctance. The company was founded on a cloud-only strategy but was forced to pivot after it became clear that it was ahead of the market. Two years ago, co-founder Mike Olson told SiliconANGLE, “We won’t get into providing Hadoop as a service,” but a year later it did exactly that with the launch of Altus, a platform-as-a-service for big data. Cloudera has been racing to build on that platform, introducing the machine-learning-oriented Altus with Shared Data Experience in March and releasing its Altus Analytic Database on the Microsoft Corp.’s Azure platform.

In a research note released shortly before the earnings announcement, Mizuho Securities Co. Ltd. tech analyst Parthiv Varadarajan largely agreed with Cloudera executives’ assertions that the business strategy shifts will take time to show up in financial results. “Investors who believe in the story understand that first half of the fiscal year could be choppy with potential for upside to materialize in the second half,” he wrote. “However, a significant number of investors remain skeptical of the growth prospects offered by the space and are remaining away from it for now.”

Image: Robert Hof/SiliconANGLE