Cloudera Inc. (Pending:CLDR) released further details about its upcoming IPO on Monday, following other tech companies in going public in a solid IPO market. Cloudera plans to raise up to $210 million by selling 15 million shares at $12 to $14 per share, which will see the company valued at about $1.7 billion.

The big news coming from this announcement has been a huge amount of skepticism as it shows just how much this company has declined. As CNBC details, Cloudera was worth $4.1 billion three years ago in its last round of private funding. Intel (NASDAQ:INTC), which invested over $750 million into Cloudera in that round, now sees its investment worth less than $350 million. While that $4.1 billion valuation may have been too high, there is no good excuse for losing that much in three years.

All of this means that Cloudera has not had a prosperous three years, but what does it look like going forward? I do like what it offers and Big Data is a critical field going forward. But whether it is looking at the competition in said field, its history of losses, and past examples, the risk is simply too high to jump in early. But if Cloudera’s stock price declines even further, investors should consider taking a gamble on a cheap stock with a lot of potential.

The Importance of Big Data

Big Data is one of those business buzzwords which many spout but few truly understand, but it remains a growing market which has companies interested. Cloudera was founded in 2008 and largely revolves around an open-source program called Apache Hadoop, which manages huge amounts of data by breaking it up into more manageable chunks. While any company could theoretically use Hadoop for free, Cloudera helps manage it and sells proprietary software to companies like Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) to monitor their data.

Cloudera can point to the growing importance of Big Data, combined with how Big Data is working together with cloud technology, to show its growth potential. According to its SEC filing, Cloudera’s total revenue has jumped from $109 million to $261 million from January 2015 to 2017. The company is facing massive losses as it had a net loss of $187 million in 2017. But high losses are hardly unusual for a tech company going public and the losses did decline somewhat compared to 2016.

Larger Competition

But while Cloudera wants investors to look at the growing importance of the cloud with Big Data and then conclude that it is a company with high growth potential, what it actually shows is how threatened Cloudera is by competition from larger companies. Cloudera lists public cloud providers like Amazon Web Services and Microsoft (NASDAQ:MSFT) Azure as some of its competitors, and tech experts have witnessed the indomitable march of AWS as it becomes a more important part of Amazon.

At the same time, Cloudera has to show how it will be different from Hortonworks (NASDAQ:HDP), another Big Data company which revolves around Hadoop. Hortonworks launched its IPO at $16 per share, but its shares have been currently trading around $10 for all of 2017. There are differences between their business models which Cloudera can use to explain away the differences. But after witnessing one Hadoop-related company fall off after a strong IPO, investors will understandably be nervous about investing in another, similar company. And given Cloudera’s losses and the intense competition, there are reasons to be nervous.

High Risk

Expected growth in the Big Data market means that if Cloudera can distinguish itself from its competitors, its stock could grow a lot and reward investors who choose to jump in at the beginning.

But that is a major “if.” Cloudera can count on Intel which could own about 21 percent of the company after this IPO. But it cannot just brush aside its massive losses. How will it become profitable in the face of intense competition from larger companies like Amazon? How will it continue to distinguish itself and show it is not the next Hortonworks? And how will it explain the failures of the last three years which saw its valuation shrink?

While Cloudera could surge at some point in the future, it is far more likely that the company’s value shrinks in the near to medium term as it fails to turn a profit. If investors are truly interested in Cloudera and Big Data, it is better to wait a few months for the stock to fall and then go after Cloudera.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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