Contact: Brenon Daly
Although both New Relic and Hortonworks revealed their IPO paperwork on the same day, that’s pretty much all the similarities we could find between the two enterprise technology companies. The two candidates have wildly different delivery models, operating margins, customer counts and even maturity of business models. That’s not to say they both can’t find a home on Wall Street, but only one of them is likely to dwell in a ritzy neighborhood. (451 Research subscribers: look for our full reports on both the New Relic and Hortonworks offerings later today.)
Of the two offerings, New Relic looks to be the standout. The application performance management vendor is growing quickly, but maybe more importantly, it is starting to show some leverage in its business model. This stands in sharp contrast to some of the other unprofitable IPO candidates that talk distantly about the company hitting some magical ‘inflection point’ when the red ink turns black.
New Relic is already demonstrating greater efficiency in its model, which will undoubtedly appeal to Wall Street. Consider this: In the first six months of the company’s current fiscal year, its operating loss basically stayed the same even as revenue soared 84%. More specifically, New Relic actually lost less money in its most recent quarter, which wrapped in September, than it did in the same quarter a year earlier. It trimmed its quarterly loss even as the company added more than $10m, or 78%, to its top line.
In contrast, Hortonworks is still forming its business, without much – if any – regard to optimizing it. The three-year-old Hadoop distributor is a classic startup, with many of the concerns that come with early-stage businesses: customer concentration, heavy upfront spending and precariously thin margins. (Hortonworks’ professional services business, which actually runs at a negative gross margin, has been a serious drag on the company’s overall gross margin. Through the first three quarters of the year, Hortonworks has been running at just a 34% gross margin, less than half the 81% gross margin posted by New Relic.)
When we net out all the differences between New Relic and Hortonworks, we see a vast gulf between the two IPO candidates at the bottom line. Sure, both still run in the red, but New Relic is only a light red, while Hortonworks is hemorrhaging a blood red. To put some specific numbers on that metaphor: At its current rate, New Relic loses about 40 cents for every $1 it brings in as revenue. In contrast, Hortonworks loses a staggering $2.60 for every $1 it brings in as revenue.
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