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A tale of two companies: Domo's stock skyrocketed 21%, while Cloudera's stock dropped almost 20%. Here's why Wall Street is paying close attention to both

Business Insider | Mar 15, 2019, 02.23AM IST

Domo opening bell

Domo/Nasdaq

Domo ringing the opening bell at its IPO

  • After Cloudera and Domo reported their quarterly earnings on Wednesday, both companies saw dramatically different stock movements the next day.
  • Domo, which makes a cloud tool for tracking business information, saw its stock rise about 21% in trading on Thursday.
  • Shares of Cloudera, which makes software for analyzing huge amounts of information, dropped about 20%.
  • Investors are skeptical about the Cloudera-Hortonworks merger, but they are confident about Domo's new enterprise sales strategy.

Domo and Cloudera, two enterprise companies without much else in common, reported their quarterly financials on Wednesday - and saw dramatic stock moves the day after.

Cloudera, which makes software for analyzing large amounts of data, dipped almost 20% on Thursday after reporting revenue well above Wall Street expectations, but disappointing future guidance. Analysts were watching this quarter especially closely, as it was the first report following Cloudera's merger with rival Hortonworks

Meanwhile, Domo, which helps business keep track of all of their metrics in one place, beat expectations on revenue, and gave guidance that was in-line with what analysts wanted to see.

Analysts tell Business Insider that Cloudera's tumble is a sign of the skepticism around its merger with Hortonworks, while they believe that Domo's rising fortunes is a sign that its new sales strategy is working.

The Cloudera and Hortonworks merger

Cloudera beat Wall Street estimates on Wednesday, reporting revenues of $144.5 million, versus estimates of $121.1 million.

However, Cloudera estimated revenue for the next quarter of $187 million to $190 million, while analysts forecasted $189.9 million - right at the top of that range. For the 2020 fiscal year, Wall Street is expecting to see $851.87 million in revenues, which is also towards the top of Cloudera's new estimates of $835 million to $855 million.

Cloudera and Hortonworks sealed the deal and officially merged in January, which means that investors were paying even closer attention to this report than normal, says Dan Ives, managing director of equity research at Wedbush Securities. And when Cloudera reported disappointing guidance, it "fanned the flames of those worries."

Read more: Two public tech companies are about to merge, creating a $5.2 billion data processing giant - and their stock prices are soaring as high as 15%

"When you make an acquisition like this, these two companies combining, Hortonworks and Cloudera, in the first 3-6 months of an acquisition, everything needs to be flawless in the eyes of the Street in order to get confidence," Ives told Business Insider. "They definitely stumbled over their shoelaces in terms of guidance. That's really been the focus of investors."

Cloudera Tom Reilly

YouTube/EnterpriseCIOForum

Cloudera CEO Tom Reilly

Ives said that it's possible that Cloudera was just being conservative in its estimates, and Wall Street may be worried over nothing. He's bullish on the merger of Cloudera and Hortonworks, as it makes sense on paper and could be a major step forward - especially in an era where similar tools from the likes of Amazon Web Services and Microsoft Azure are picking up steam.

However, he says, Cloudera need to execute much better next quarter to prove the naysayers wrong and show that the companies are successfully integrated.

"The knee-jerk reaction is a bit of an overreaction," Ives said. "In order to see the stock move significantly higher, there's a lot more wood to chop in terms of sales acquisition and proving to the Street that this is a 1+1=3 acquisition and not 1+1=1.5."

A smarter sales strategy for Domo

As for Domo, it reported quarterly revenues of $39.4 million on Wednesday, beating Wall Street's predictions of $37.75 million. It also forecast revenues of $40 to $41 million for the next quarter, compared to Wall Street's estimates of $40.4 million, putting its guidance right in line.

For the full 2020 fiscal year, Domo predicts revenues of $173 million to $174 million, compared to Wall Street estimates of $173.86 million, also in line with expectations.

Domo's beat proves that its new sales plan is working, says J. Derrick Wood, managing director at Cowen. Domo is a client of Cowen, according to the firm's disclosures.

Before, Domo was selling to all sorts of businesses, from small and medium-sized ones to major enterprises. It spent its resources on research and development to build its platform, but the company wasn't selling and showcasing its products correctly, he says.

This quarter, Domo finally realized that its platform is best-suited for larger enterprise customers, Wood says. As a result, Domo coalesced over building a strategy targeting these types of companies, learned to effectively sell to enterprises, and hired new sales leadership.

"One thing they did was embrace the CIO in the sales cycle," Wood told Business Insider. "They can sell to marketing, they can sell to finance, but embracing the CIO at the same time was getting them to help customers realize the full potential of the platform and the endless use case possibilities around the platform."

When Domo first went public last June, some experts warned investors to stay away, citing its high spend on sales and marketing, among other factors. But now, investor confidence in Domo appears to be growing.

Read more: Domo went public and investors are biting but a watchdog warns 'stay away from this IPO'

Wood says Domo will continue to be promising. He says the analytics market looks encouraging, and if Domo keeps up with its strategy, it "absolutely can be successful" and accelerate its revenue growth. He says Domo is already planning to grow its sales team.

"We think all these vendors can be very successful and Domo has a very unique platform with a lot of technology investment, so the product is there," Wood said. "It's just a matter of figuring out how to sell it and how to take it to market. That's the key to unlocking success and growth and market share. That's where we're seeing early signs of improvement."

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