Why Carl Icahn spent in Cloudera

Why Carl Icahn spent in Cloudera - us-canada

Carl Icahn speaking at Delivering Alpha in New York on Sept. 13, 2016.

David A. Grogan | CNBC

The most recent target of Carl Icahn, an investor famous for his activist-takeover campaigns, is Cloudera, a distressed enterprise-software firm that recently united with its main rival.

Icahn has taken aim at a business that is not nearly as richly appreciated as other tech names. Cloudera’s market cap is less than $2 billion, and it had a price-to-sales multiple of 2.6 for its current financial year, based on Refinitiv, while comparable small-scale enterprise applications firms MongoDB and Twilio boast multiples of 16.4 and 14.5 respectively.

Cloudera is available at a discount for a few reasons: The man who took it public has abandoned, and large cloud firms such as Amazon are picking up business on Cloudera’s turf.

Cloudera stocks rose after Icahn’s standing in Cloudera became public on Aug. 1. “The Reporting Persons acquired their positions in the Shares in the belief that the Shares were undervalued,” Icahn and Co. wrote in the regulatory filing showing the ownership stake.

On Monday the firm stated that as a consequence of an arrangement with Icahn, two workers of Icahn Enterprises, Nicholas Graziano and Jesse Lynn, will combine Cloudera’s board. Icahn and his affiliates currently own more than 18percent of the business, whose market cap is under $2 billion.

Cloudera declined comment. Icahn couldn’t immediately be reached for comment.

Nothing to split up

Launched in 2008, Cloudera sells software that companies use to store and process wonderful quantities of various kinds of information, sometimes known as “big data.” It is famous for popularizing the Hadoop open-source big information applications, which was motivated by technology utilized at Google and put into widespread usage by Yahoo. The company went public in 2017 with substantial backing from Intel.

For many years, Cloudera competed with other businesses selling distributions of Hadoop, such as Hortonworks. Subsequently Cloudera and Hortonworks merged in a deal which was initially valued at over $5 billion. Both companies’ stocks did not respond well to the information, though. As they worked on incorporating, Cloudera saw public cloud sellers pick up a number of its earnings opportunities, stated then-CEO Tom Reilly on an earnings call in June. (Reilly has since left, and Chairman Martin Cole is currently the firm’s interim CEO.)

Advisors have varying opinions about what Icahn is very likely to do.

“Cloudera is a pure-play single platform company and there’s nothing to breakup, so we’d imagine that the compatible areas of Mr. Icahn’s historical playbook would be restricted to 1) agitating for a sale, or 2) pushing for big expense reductions to boost cashflows,” BTIG analysts headed by Edward Parker wrote in a note distributed to customers after the Cloudera bet was revealed.

“The prospect of the latter’s achievement is complicated by the fact that the stickiness of Cloudera’s current revenue stream is presently subject to a high level of skepticism. Really, Cloudera’s future largely hinges on the success of the approaching CDP [Cloudera Data Platform] release, which pivots the provider’s big data management system from on-prem towards hybrid and multi-cloud environments.”

Rishi Jaluria, senior research analyst at DA Davidson, believes the company is undervalued.

“While the involvement of Mr. Icahn is a surprise, the involvement of an activist is not – we do believe shares are currently undervalued and the company could benefit from an activist,” he wrote in an Aug. 2 note. With Icahn in the combination, he could bring about the choice of a replacement for Reilly, or agitate to market the business to IBM or a private equity buyer.

The consolidation in the industry underscores the problem of building strong sustainable companies selling open-source applications. Earlier this month Hewlett Packard Enterprise stated it obtained the “business assets” of a smaller Hadoop participant, MapR. HPE did not disclose terms of the deal.

Icahn is no stranger to technology investing. After investing in Lyft in 2015, he exited the position earlier this season , before the provider’s initial public offering. Last year he left a position in PayPal, obtained a bet at VMware and bought to the tracking inventory for Dell since the business was plotting its return to public markets. Icahn has endorsed Apple and Netflix.

WATCH: BTIG’s Fishbein on cloud firms targeted for takeover

Why Carl Icahn spent in Cloudera - us-canada

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