📮The Sunday Newsletter archive

Manage Your Cloud Infrastructure

HashiCorp ($HCP) is the type of company you need a Ph.D. in computer science 👩‍💻 to understand exactly what it does. But because you don’t need a Ph.D. to read the Sunday Latte, let’s keep it simple. The company develops open-source tools, which means that anyone can download its core software freely and modify the code to their needs. To date, its tools have been downloaded over 100 million times

But it also offers its tools on a subscription basis, souped up with enhanced features. Those tools are mainly used by large companies such as Roblox ($RBLX), Stripe, or Goldman Sachs ($GS) to help them increase the efficiency of their cloud infrastructure.

When companies move from on-premise to cloud-based infrastructure things can get quite complex, especially in large multibillion-dollar companies. Hashicorp has developed 4 main tools that help developers manage their cloud infrastructure across the big public clouds operated by Amazon ($AMZN), Microsoft ($MSFT), and Google ($GOOG$GOOGL). Its tools let clients manage their security, networking, and applications in centralized locations. As of October 31, it had 1,700 customers and 595 of them had $100K or more in Annual Recurring Revenue (ARR).

For the first nine months of the year, revenue jumped 49% y/y to $224 million. While the company is not profitable yet, its bottom line is moving in the right direction. In 2021 its operating margin improved to -27.7%, from -40% in 2020 and -46% in 2019.

📫Originally posted as part of the Sunday Latte
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These days most large companies use a multi-cloud approach. For example, they use both Amazon’s AWS and Microsoft’s Azure, creating complexity and challenges. Hashicorp’s solutions help these businesses manage their cloud infrastructure more efficiently, reduce their costs and improve their security. The company estimates that the addressable market of its four main products will reach $72.5 billion by 2026, so its growth potential is significant. 

Hashicorp has priced its IPO at a midpoint price of $70 apiece, which translates into a market cap of $12.5 billion and a P/S ratio of 44. This valuation will place it among the most expensive 🏷️🏷️ software names on the market. While the company deserves a premium multiple due to its strong growth and operating leverage, the tough market conditions make it a risky play in the short term. Shares start trading on Thursday.