Why I sold Pivotal (PVTL)

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Pivotal, I hardly knew ye!

I know, pretty crazy that I bought after the earnings report a week ago and then sold today. Nothing was wrong with the report. Nothing was wrong with anything the company has done. My questions are all related to the future. Namely, the TAM and Pivotal’s customers.

Short version: They have several very large customers whose spending with them has ramped up FAST. It’s very hard to imagine spending will keep this pace, so if they can’t add new customers who will also become very large, growth rate will drop precipitously.

Brittlerock picked up on this issue here: http://discussion.fool.com/fish-you-appear-to-be-sanguine-about-…

I had addressed a similar concern - that their incredible retention rate but uninspiring new customer growth might set them up for a rapid slow down at some point:
http://discussion.fool.com/sure-they-boast-quot7-of-the-largest-…
http://discussion.fool.com/i-was-a-little-concerned-at-the-conti…

SteppenWulf mentioned that his experience was working at the largest banks in the world. I can see how they would need Pivotal. In fact I think his bank might be one of Pivotal’s largest customers, maybe even #1. Pivotal has just 339 customers. Will the others ever spend as much with Pivotal as said top 5 bank? I doubt it. Please understand, I am not writing this post to criticize SteppenWulf, Saul, or any of the others who have analyzed this company and lent their knowledge and experience to the board. They may be right and I may be wrong.

Tinker mentioned Kubernetes who partners with RedHat Openshift and provides a similar product. It seems like many other large banks use them: Goldman, Barclays, SoftBank, KeyBank…along with other large enterprises like Cisco, T Mobile, Ebay, JD.com, Comcast, Phillips, etc.

So perhaps what Pivotal and Kubernetes do is much bigger than I understand, and perhaps Pivotal will get a bigger piece than I can imagine…or perhaps Kubernetes is a dangerous competitor that already has a lot of Pivotal’s potential clients locked up. I don’t know and I really don’t need to know. I’m placing Pivotal in the “too difficult” category (a man’s gotta know his limitations).

Plus, they’re now a 7 billion dollar company after the huge share price increase this month (shares are up 56% in June!), and I just can’t see the way forward in the near term.

I’m mainly posting this to add my thoughts (non-expert thoughts) to the discussion. Hope someone convinces me to get back in.

Bear

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I’m mainly posting this to add my thoughts (non-expert thoughts) to the discussion. Hope someone convinces me to get back in.

Bear

I just bought back in on the down day yesterday. Had similar concerns on customer acquisition, but i think those are outweighed by the (relatively) early phase of the multi-cloud PaaS cycle we are in. Large enterprises dont move quickly on major shifts, due to existing investments and fact that humans dont want to be fired when something goes wrong. So they dip toes in and then expand as it is validated to work. The more other customers serve as successful case studies, the more the other large enterprises move forward. This is another human effect of not wanting the boss to ask why you arent using the innovative thing that their competition has leveraged to get ahead.

I am dumbing this down more due to time constraints, but the other piece is in how this is sold. A direct sales force can only do so much. With Accenture pushing Pivotal aggressively and other channel partners doing the same, it greatly accelerates the sales activity.

Many IT VARs/SI’s are more and more focused on services. Servers and storage and networking hardware has continually become more commoditized, squeezing margins. You can get credit for selling software and cloud subscriptions, but there is no hardware sales to be had in the public cloud game for a channel partner. So a huge focus on cloud services is and has been underway, and will only increase. West coast companies tend to be earlier adopters than more conservative midwest companies. You see this trend in things like hci and cloud. So there will also be an upswing in clients that are just more cautious in moving to multi-cloud and needing/benefitting from Pivotal.

Finally, i had to reply mostly because i disagreed with you on TTD, and that worked out pretty good. Color me superstitious. :slight_smile:

Dreamer

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To add, here was DreamerDad’s post about mentioning moving Pivotal up to a Tier 1/1.5 position over on the NPI board.

http://discussion.fool.com/tier-adjustments-33099993.aspx?sort=w…

Having diverse/“Motley” opinions on stocks is necessary to have a market. If everyone had the same thoughts on every company, there would be no chance to have above-market returns.

volfan84
Sticking with Sept 2018 Pivotal $22.50 calls…with tax implications helping provide good incentive for “proper Foolish investing behavior” in this instance to hold longer

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Good sales rationale to me! 1.) Got in early, took a chance, but don’t really understand it 2.) Big two-day pop 3.) Er… we’re not looking at Microsoft here, are we, so… nice time to take a big gain and move on.

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I think the most important thing I heard during the earnings call was that the Air Force Air Operations Center was a customer and uses PCF.

The DoD is way behind the curve on cloud transition and this could be the start of an incredible growth track within the DoD and government entities.

Once companies get familiar with gvmnt contracts and get into one big deal, there’s usually more to follow.

Time will tell but Pivotal is my largest holding.

I have a friend who works there. He’s super smart (common sense and book smart), is a great person, and loves working there.

All good signs. I’m sure it will be volatile, but believe they bring tremendous value to customers.

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Bear,
Thanks for the call out. While I obviously agree with you conclusion, I disagree with your timing. PVTL is a bit under a 6% position for me and I’ve not sold, yet. I think they’ve got a decent runway in front of them at this point. As you mentioned, they’ve got in the vicinity of 350 customers at present. While I do believe that their TAM is somewhat constrained, I don’t think 350 customers is pushing the upper limit.

I think they’ve still got a number of high growth quarters in front of them before they approach saturation. What’s the magic number? Got me there, I don’t know. But I’m assuming if they show a couple of quarters of slow down that will be indicative of strain. I might not wait that long, I’ll be watching this one pretty closely. But for now, I think this is still a strong position.

I guess we’ll see.

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To add, here was DreamerDad’s post about mentioning moving Pivotal up to a Tier 1/1.5 position over on the NPI board.

http://discussion.fool.com/tier-adjustments-33099993.aspx?sort=w…

Having diverse/“Motley” opinions on stocks is necessary to have a market. If everyone had the same thoughts on every company, there would be no chance to have above-market returns.

volfan84
Sticking with Sept 2018 Pivotal $22.50 calls…with tax implications helping provide good incentive for “proper Foolish investing behavior” in this instance to hold longer

As a follow-on to this, and not as an attack on Bear (as he is a valuable poster here, probably a 1st or 2nd-teamer at worst), but as a point of reference and much moreso as a call to dig deeper on Pivotal, I present a link to Bear’s February 23, 2018 analysis after The Trade Desk’s February quarterly announcement. If you aren’t aware of TTD’s subsequent quarterly announcement on May 10th and the associated, sustained price uptick, I recommend taking a look at a TTD price chart.

http://discussion.fool.com/bear39s-decq-review-of-ttd-32994528.a…

So, the main question could be summed up as “Are there enough customers out there who need Pivotal’s services for Pivotal to have sustained revenue growth?”

It may have been missed by many, but Saul posted the following observation on Sunday/really late Saturday night, that the customer growth of +20 seems to imply an acceleration from adding only 44 customers last year to being on a present pace to add about 80 per year.

http://discussion.fool.com/pivotal-and-irs-33103917.aspx?sort=wh…

-volfan84
long PVTL call options

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Does anyone have information about the CEO? I can not find anything of value in terms of track record. This is the only information I can find:

Rob Mee 53

A software engineer by trade, started his career working at an artificial intelligence laboratory in Tokyo, writing natural language translation systems in Lisp. Graduated from the University of California at Berkeley.
CO-founder of company - 1998

It also seems like their primary focus is on the consulting services side as their software was never really a hit?

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Does anyone have information about the CEO? I can not find anything of value in terms of track record. This is the only information I can find:

Rob Mee 53

Here he is giving a presentation, published on Dec. 5, 2017. Might be able to glean something from watching it.
https://www.youtube.com/watch?v=_uB5bBsMZIk

-volfan84

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Merc,

Software is what they are focusing most on and where they are driving the business (due to demand) their services side is shrinking by intention. Used to be their model but software/subscription revenue is their future.

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