Investing Ideas – How to Make Sense of all the #BigData with #Hortonworks (HDP)

Big Data

Big Data has been a growing noun over the past 5 years as a core component of the Internet of Things.  What exactly does it mean?  Let’s start with the Internet of Things (IOT).  IOT is a phrase that describes how all devices will soon be connected to the internet or one another.  Soon enough, you’ll walk into your kitchen, tell your coffee machine to start brewing, the microwave to start, and the dryer to fluff your pants.  This is what I mean by more connectivity with the IOT to make your life easier.

Big Data is simply taking all the information companies have access to and making better business decisions by drawing correlations or connections.  Here’s an example of using data very effectively.  There’s a well-known story about Target sending coupons to an expecting young woman and an irate father (who was unaware of her pregnancy).  The father went to a local Target store in Minneapolis, stormed in the front door, and proceeded to scream at the Target manager on duty, “My daughter got this in the mail!” he said. “She’s still in high school, and you’re sending her coupons for baby clothes and cribs? Are you trying to encourage her to get pregnant?”  The man left the store, drove home, and had a conversation with his daughter about the whole situation.  A few days later, he went back to the Target store to apologize after discovering his daughter was indeed pregnant.

Target Store Sign
Target Retail Store

Target’s analytics team discovered links between a women’s second trimester and purchasing large quantities of unscented lotion, cotton balls, and unscented soaps.  Their team has gotten so good with these patterns that they used the information to target potential customers by luring them to Target for purchases with coupons.  This is an example of using data analytics to understand a customer’s buying habits better than they know themselves and predict future purchasing decisions.

Seeing how an example like this could improve future profits by targeting customers in a much more efficient way, companies are investing in data technology at a rapid pace.  This will result in an increase of software expenses in order to help make sense of all by investing in Big Data.  There’s a company that is out in front of this trend who just IPO’d (filed for their Initial Public Offering) in November 2014 called Hortonworks (HDP).   Hortonworks specializes in Big Data that is definitely in the Internet of Things arena.


Who is Hortonworks?

Hortonworks uses a software platform called Apache Hadoop.   Apache Hadoop is an open source framework for distributed storage and processing of large sets of data.  Hadoop enables businesses to quickly gain insight from massive amounts of structured and unstructured data.  Numerous Apache Software Foundation projects make up the services required by an enterprise to deploy, integrate and work with Hadoop.  Basically it means they take lots of data a company has, make sense of it, and provide recommendations.  Those recommendations can be used to understand customer behaviors in order to increase sales, target customers better, or whatever other goals companies have set forth to achieve using data.

It’s June 2015.  One thing I love about HDP is that it’s trading right around the same levels as the IPO price from November 2014 meaning the valuation hasn’t really taken off yet.   Their EPS (Earnings Per Share) Growth over the next five years is projected over 32%, Insider Transactions are up 25% (who better to know the business than their internal staff), and the company shows tremendous upside potential.  The current market capitalization is only 1.1 Billion and has so much room to grow.  As a comparison to other companies in the same industry, the market cap of 1.1 Billion is well below its competitors giving it legs to grow.  Splunk (SPLK) that has a market cap of 8.2 Billion, Red Hat (RHT) has a market cap of 14.1 Billion, and Teradata (TDC) has a market cap of 5.6 Billion.

Hortonworks has been around for a little under a decade privately and has been available to buy on the public exchange for six months.  If you missed Red Hat (up 55% in the last year), don’t let another opportunity like HDP escape your portfolio without a second look.

Alex Richwagen
Alex Richwagen

Alex Richwagen is an investment research analyst.  Any of his recommendations are that of Mr. Richwagen, the information presented by him is the opinion of his research.  All investment decisions are your choice and should be based on your own analysis.

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