Rapid rise of Hadoop will see Hortonworks smash revenue growth record

Faster even than Salesforce, Hortonworks looks set to hit revenues of $100m this year after just four years in existence - but it has yet to turn a profit

Hortonworks will become the first software start-up ever to hit annual revenues of $100m in less than five years, according to Barclays Research.

Hortonworks, a distributor of the Apache Hadoop big data platform, was founded in 2011 and went public in December 2014. It differs from its main rivals Cloudera and MapR both in its status as a public company and also in that none of the tools in its HDP distribution are proprietary, instead they all come through the Apache Software Foundation.

This week the company announced total GAAP revenues of $30.7m for the second quarter, a year-on-year increase of 154 per cent, and a 26 per cent rise on the Q1 figure of $22.8m. These figures were well above analysts' forecasts and at this rate, Hortonworks will see revenues easily exceeding $100m this year, just four years after its launch. For comparison, previous software record holder Salesforce.com took five years to reach this milestone while fellow open-source vendor Red Hat took 10 years, according to research by Barclays.

"This shows how well and how fast the market is embracing Hadoop," said Clive Longbottom, co-founder and service director of analyst firm Quocirca. "For Hortonworks, it shows how it needs to maintain differentiation over other distributions and be seen to be adding sufficient added value to the base platform."

The firm now has about 550 paying subscribers, with 119 being added in the last quarter alone. Recent additions include digital marketing company Marketo and energy giant GE. Media group Bloomberg increased its investment HDP during this time too, something that Hortonworks president Herb Cunitz says is part of a wider pattern.

"This is a growth market: we're seeing customers growing at around 20 per cent per quarter, and another important metric is we have a net expansion rate of 144 per cent, so if they spend one dollar on services this year they spend $1.44 next year," he said.

As private companies, corresponding figures for MapR and Cloudera are not available, but Cloudera's chief architect, Doug Cutting, said his company "has been doubling in both revenues and customers for quite a time", all of which makes recent comments by Gartner research vice president Merv Adrian, who suggested that demand for Hadoop looks "fairly anaemic over at least the next 24 months", seem rather wide of the mark.

"We are not seeing what Gartner is saying about the market," Cunitz said. "We're seeing the growth only accelerate in terms of revenue adoption, in terms of new customer adoption, in terms of size of initial customer deals and in terms of growth in existing customers, so by all metrics we're seing the market accelerate and not slow down."

That said, Hortonworks' losses remain stubbornly fixed around the $40m-per-quarter mark and it has yet to turn a profit. But Cunitz insists that the company is in line to be profitable by early 2017, saying that investment in attracting new customers during this rapid growth stage will pay dividends.

"Much of our investment has been in people, around G&A for revenue recognition, field people for sales, engineers. Much of that is now in place and as we grow the revenue at some point that revenue line will cross the expense line," he said, citing new areas of growth such as sensor data management and the Internet of Things as well as smaller companies adopting the platform that will continue the momentum.

Longbottom said the firm will need to prove that it can turn a profit sooner rather than later if investors are to be kept onside.

"Hortonworks is still operating as a start-up, yet it is now a decent-sized company by revenues," he said. "It has to turn the corner on the hockey stick and become profitable, otherwise investors will begin to worry that it hasn't learnt the trick of operating as a grown-up company, but remains wedded to burning through money. With such revenues and gross profit, it should now be showing that its losses are either decreasing rapidly - or preferably, that they are turning an actual bottom-line profit."