Enterprise Hadoop Startup Hortonworks Files for IPO
All members of Hortonworks’ founding team used to work on Hadoop and MapReduce development and deployment at Yahoo prior to 2011. (Photo: Hortonworks)

Enterprise Hadoop Startup Hortonworks Files for IPO

SEC filing reveals growing revenue, but inability to turn profit

Hortonworks has become one of the first startups that built their business around the open source big data software framework Apache Hadoop to file for an IPO.

The company submitted IPO documents to the U.S. Securities and Exchange Commission Monday. The amount and price of shares it expects to sell has not been determined, according to a Hortonworks statement.

Created by Yahoo, Hortonworks was one of the first companies to go after the enterprise Hadoop market, turning the open source technology into a software business. The framework, which enables users to turn cheap commodity servers into powerful compute clusters that can crunch through a lot of data using parallel processing techniques, has grown in popularity over the recent years as companies look to monetize the massive amount of user data in their possession.

Some of the biggest Hortonworks competitors in the enterprise Hadoop space are Intel-backed Cloudera, MapR (which has close ties to Google), and Pivotal, an EMC subsidiary led by former VMware CEO Paul Maritz.

Revenue grows quickly, but so do losses

While its revenue has been growing quickly, Hortonworks has not yet been able to turn a profit.

Its platform is open source and available free of charge. The company makes money by selling support contracts and professional services.

Hortonworks reported about $7.7 million in support subscription revenue and about $3.3 million in professional services revenue for fiscal year ended in April 2013. Total revenue of nearly $11 million for that 12-month period was a significant increase over the preceding fiscal year’s revenue of about $1.6 million.

The company’s revenue has been growing much faster recently, however. It made about $33.4 million in sales for the nine months ended on September 30 this year, including about $19.2 million in support subscriptions and $14.2 million in professional services.

Taking away the cost of providing support and professional services, as well as operational costs, such as R&D, sales and marketing, and administrative expenses, Horrtonworks’ total loss for the nine months ended September 30 was about $86.7 million.

The company acknowledged that it has incurred losses every year it’s been in business in the documents it filed with the SEC. It also warned potential investors that because of the uncertainty of the market it is operating in, it may never be able to become profitable.

“Because the market for our solution is rapidly evolving and has not yet reached widespread adoption, it is difficult for us to predict our future results of operations,” the document read. “We may not achieve sufficient revenue to attain and maintain profitability.”

The company said it expects its operating expenses to continue growing as it hires more people, expands distribution channels, and invests more in R&D.

Hundreds of paid customers; high-profile partnerships

Hortonworks was founded in 2011 and launched its core offering, a Hadoop platform for enterprises, one year later. It had about 230 support subscriptions and nearly 300 customers total as of the end of September of this year.

The company has integration partnerships with a handful of IT vendor and service provider heavy-hitters, including HP, Microsoft, Red Hat, SAP, Teradata, Yahoo, and Rackspace. HP also holds a $50M equity stake in the company.

Yahoo got dibs on 6.5M very cheap shares

Hortonworks’ entire founding team came out of Yahoo, where they worked on developing and deploying Hadoop and MapReduce at the Internet company.

As the company that created the startup, Yahoo holds the right to buy 6.5 million shares of preferred stock at $0.005 per share when the offering commences. Yahoo secured the “preferred stock warrant” when it spun Hortonworks out in 2011.

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