Avoid Pivotal, Cloudera

Markets are now realizing the rapid growth in Software-as-a-Service (or ‘SaaS’) companies is over. Pivotal (NYSE:PVTL) and Cloudera (NYSE:CLDR) both spooked investors after reporting very weak results and fell 45.6% and 44%, respectively. What happened?

Cloudera’s CEO resigned just as the company reported weak first quarter revenues of $187.5M, up 81% Y/Y. It lost $0.38 a share. For Q2, its revenue of $180-$183 million is below the $203.2 consensus. FY20 revenue will come in even worse than expected: $745 million - $765 million, compared to the $843.8 million consensus.

Cloudera blamed its merger created uncertainties for customers but management clearly did not transition the business to plan for product enhancements in the pipeline. At this pace of revenue growth deceleration and mounting losses, investors should avoid Cloudera stock.

Pivotal cut its full-year revenue to $756M - $767M, down from its previous guidance of $798M - $806M. With the stock price below $11, the stock trades at a price/sales of four times, half of where it was prior to the drop. Still, at a 15% revenue growth rate, the Enterprise platform market is shrinking. Customers may choose Amazon, Google, or Microsoft platforms instead, much to the detriment of Pivotal’s business.

Given the declining market opportunity and challenges ahead, avoid Pivotal stock.

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