The only unsettled issue for Palo Alto-based Cloudera Inc. is not if it will go public, just when. Many industry analysts thought for sure 2014 would be the year, but then its rival, Hortonworks, filed for an initial public offering (IPO) in December. In 2015, the prospects were even stronger for an IPO, but the company had just raised nearly $1 billion in private funding and thought the conditions were not right. There are several good reasons why 2016 could be the year for a Cloudera IPO, but Cloudera will probably keep the market guessing one more year.
Cloudera was founded in 2008 by former engineers from Google, Yahoo and Facebook who were looking for ways to streamline storing, processing and analyzing big chunks of data. The company has since become the largest and most successful provider of Hadoop open-source big data software. Hadoop is a free, Java-based programming framework that supports processing large data sets in a distributed computing environment. In seven years, the company has grown its annual revenues to an estimated $150 million and has attracted more than $1 billion from private sources, including Intel, which purchased an 18% stake in Cloudera. Although it has yet to show a profit, Cloudera estimated valuation is between $4 billion and $5 billion. Cloudera’s largest competitor, Hortonworks, has less than half the revenue, but it went public in December 2014.
Cloudera has been flirting with an IPO for several years. Although it is well-funded, time may be running out for Cloudera. The private funding well is likely to run dry in the next year, and the company is spending about $3 to generate $1 of revenue. Right now, Cloudera controls 50% of a market that has yet to yield any profits, but it may need an IPO to solidify its dominance over rival Hortonworks.
Its Valuation May Not Hold Up
Cloudera's valuation has soared in the last three years, from around $750 million in 2012 to more than $4 billion in 2015. Unfortunately, the market revealed its low tolerance for high private valuations when Hortonworks was forced to cut its valuation in half for its IPO. Although Hortonworks has nowhere near Cloudera's market share or revenues, the market will expect a valuation discount for its IPO. Cloudera will have to choose between going down round for future funding or opting for a sure thing with public funding.
The Case Against a Cloudera IPO in 2016
Some analysts believe Cloudera can increase revenues to more than $300 million in the coming year, which could build a more solid case for its current valuation. That would relieve some of the pressure it feels to discount its valuation significantly for an IPO. With more than $1 billion of venture capital raised in the last few years, Cloudera may not feel the urgency for an IPO until it can improve its financials while it hopes for better market conditions next year.
Although Cloudera has said that it is IPO-ready right now, it has also said it would like to enjoy the advantages of private ownership for as long as possible. Unless 2016 turns out to be a positive year for IPOs, it would not be surprising to see Cloudera wait until 2017 for its IPO. However, if it is willing to discount its valuation to attract the market's attention, 2016 may present the best opportunity for an IPO. Cloudera would be one of top tech IPOs of the year. At best, there is 50% chance that Cloudera will go public in 2016.