HashiCorp Powers Cloud Infrastructure Automation
HashiCorp stock recently fell to $21.50, down from the Dec 2021 IPO price of $80
HashiCorp (HCP, $24.68), an emerging provider of multi-cloud infrastructure automation software, endeavors to better enable the cloud operating model. The company’s platform lets users provision, secure, connect and run any infrastructure for any application.
Organizations continue to shift all types of workloads and associated infrastructure to the cloud. IDC expects the global public cloud services market to reach $704 billion in 2024, up from about $308 billion in 2020.
Today, HashiCorp operates in a large and growing market estimated to be worth $42 billion. By 2026, the total addressable market could reach $73 billion, with most of the growth driven by two segments: infrastructure provisioning (estimated to reach $12 billion) and application delivery (estimated to reach $9 billion).
HashiCorp went public in December 2021. The stock quickly rose from the IPO price of $80, hitting a new record high of $102.95 within weeks of the listing. Earlier this month, HashiCorp stock fell to a new post-IPO low of $21.50.
At recent prices, HashCorp’s enterprise value (EV) is 7.4 times the FY’23 (Jan.) consensus revenue estimate of $445.5 million (representing growth of 38.9%). On the FY’24 consensus of $576.7 million (growth of 29.4%), the multiple is 5.7x.
HashiCorp has been delivering excellent growth. Last year, total revenue advanced 51% to $320.8 million. In the fiscal second quarter of FY’23 (Jan.), total revenue of $113.9 million rose 52% (accelerating 100 basis points sequentially) and beat the consensus estimate by 11.3%. Gross margin of 84% gained 100 basis points year over year. Total RPO of $498.4 million rose 48%, with the current portion up 50%. Net dollar retention of 134% was up sharply from 124% in the year-ago period.
About 88% of HashiCorp’s revenue comes from customers with annual recurring revenue (ARR) of $100,000 or more. After adding 30 of these large accounts in FQ2 (July), there are now a total of 734, up 32% year over year. HashiCorp’s goal is to add 80 to 100 of these large customers per year. In FQ2, average quarterly revenue for this cohort advanced 16% sequentially to $149,000 thanks to expansions and extensions into new products.
Enterprise customers like that HashiCorp software allows them to adopt consistent workflows and a standardized approach to automating the central processes involved in the delivery, security and networking of applications in the cloud. Today, more than 75% of all organizations use a multi-cloud approach, creating complexity and a number of challenges. HashiCorp thrives in multi-cloud because its solutions help everything work together cohesively.
On the FQ2 earnings call, HashiCorp management called out a newer trend in which organizations are increasingly relying on centralized cloud platform teams to become common buying centers. This is a big positive for HashiCorp in terms of its go-to-market motion, as these teams can help drive adoption of a number of its products. Among HashiCorp’s most promising offerings: Terraform (for infrastructure automation), Vault (security) and Consul (networking).
The emergence of centralized cloud teams indicates a level of maturity for organizations moving away from on-prem. Once companies get through the initial cloud adoption stage, they look for a centralized approach to driving common compliance, security and controls, according to HashiCorp co-founder & CTO Armon Dadgar. He explains that cost concerns and overall manageability issues are catalysts for standardization and the implementation of best practices.
In the July quarter, HashiCorp put its new Boundary offering into public beta. The managed service helps organizations standardize secure remote access to critical infrastructure regardless of where it resides. The company introduced Drift Detection on Terraform Cloud, which continually checks the state of infrastructure to look for errors or configuration drifts. Also, HashiCorp boosted its collaboration with Microsoft, making Consul available on Azure.
Despite factoring in headwinds of $4 million to $6 million to account for increased deal scrutiny by customers due to the slowing economy, HashiCorp in early September was still able to lift its FY’23 revenue outlook by 4.2% at the midpoint. The company is experiencing strong growth in the total customer base (up 72% to 3,612 in FQ2) and rapid expansion of its managed cloud unit (launched in 2020).
Hashicorp will report FQ3 (Oct.) results on December 7. The revenue guidance range is $110 million to $112 million.