UPDATED 17:01 EDT / MAY 04 2017

CLOUD

Big data firm Hortonworks delights investors with 35 percent revenue growth

Big data company Hortonworks Inc. said first-quarter revenue of $56 million rose 35 percent from a year ago with stronger margins and a narrower operating loss.

The sales results handily beat analyst consensus estimates of between $52 million and $53 million for a 27 percent growth rate. The stock jumped 10 percent in after-hours trading.

The quarterly net loss of 50 cents per share was slightly better than consensus estimates. The company also reaffirmed its guidance of between $235 million and $240 million of expected revenue for the year and said second-quarter revenue is expected to come in at $57 million, which would be 38 percent ahead of the same quarter last year. Subscription revenue was up 52 percent and represented 75 percent of total revenue, indicating that the company’s business is becoming more stable.

“An accelerating number of large enterprises are continuing to adopt our platform and services.” said Chief Executive Rob Bearden (pictured). The company closed 12 deals of more than $1 million in the quarter, nearly twice as many as last year.

Hortonworks customers now include a quarter of the Fortune 500, Bearden added. The share of sales attributed to new customers was the highest since the company went public, said Chief Financial Officer Scott Davidson.

The CEO’s remarks focused less on Hadoop, the open source data storage and analysis software its business is built upon, and more on the company’s diversification, in particular its cloud services on Microsoft Azure and Amazon Web Services platforms and its availability on IBM Elastic Storage Server and IBM Power systems.

“We started this company focused squarely on big data. We have now significantly expanded our offerings,” he said. “Hortonworks is uniquely positioned at the intersection of three megatrends: cloud, Internet of Things and big data. Cloud opens up a whole new opportunity that we view as an opportunity to monetize.”

Hortonworks now expects to break even on cash flow by the fourth quarter of this year, Davidson said. Part of the reason is improving operating margins and better expense control, he said. Hortonworks used $9 million in operating cash in the first quarter of 2017, compared with $35.7 million in the same period last year.  “We continue to operate a railroad the same way, but with better leverage and scale,” Bearden said.

Hortonworks is also benefiting from shorter sales cycles as customers embrace both Hadoop and open-source licensing, Bearden said. “Open source is now well-understood and accepted by the enterprise,” he said. Enterprise buyers “also understand the strength it gives them in releasing them from the proprietary franchise. They understand the use cases and that value can be measured quickly.”

Analysts are increasingly cheering Hortonworks’ business model, which is based upon packaging and services around community-developed software. Zacks Investment Research Inc. last month raised its recommendation to “hold” from “sell” and Drexel Hamilton LLC reissued a “buy” rating at a $21 price target, up from the previous $18.

Shaun Connolly, Hortonworks’ chief strategy officer, talked about the company’s plans to get to profitability on @theCUBE at its recent international DataWorks Summit conference last month in Germany. “The end of Q4 2016, we hit what we call the just-to-even or breakeven, which is a stepping stone,” he said. “If you look at our margins on our subscription business for instance, we’ve got 84 percent margin on that. It’s a really nice margin business. That’s a software margin.”

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