WANdisco’s second OEM partnership, with Virtustream, Dell/EMC’s cloud platform and software business, significantly strengthens the company’s platform for growth in FY18 and beyond. It is also significant because it relates to cloud object storage rather than Hadoop, firmly demonstrating the applicability of Fusion in cloud/hybrid cloud deployments. It thus raises confidence that other similar deals in the pipeline will also convert, laying a platform for a very significant acceleration in growth.
Virtustream is a subsidiary of computing/storage giant Dell/EMC. Its focus is on enabling enterprises to run mission critical applications in cloud/private cloud or hybrid cloud deployments, making it a natural fit for WANdisco Fusion. Fusion will be sold as a standard Virtustream product covering on-premises, hybrid and cloud environments, using WANdisco’s standard subscription pricing model. We understand that the deal has a $3m+ minimum commitment, but believe that there is scope for this to be exceeded relatively quickly. The product’s launch is anticipated in December, and thus the partnership should start to contribute meaningfully to revenues in FY18.
WANdisco is now looking very well placed to exploit the significant opportunity in cloud storage. The company has made strong progress advancing its cloud partnerships, notably announcing product collaborations with Amazon and Microsoft in recent months, but this is the company’s first OEM partnership in this field. We believe that other partnerships are in the pipeline and our confidence that some of these will convert has moved up a notch. Management estimates that the TAM for its products in cloud object storage will be worth $2.75bn in 2018 growing to $6.75bn in 2020, versus $0.22bn for Hadoop at the same time.
We are not changing our estimates at this stage. FY17 financial performance depends on the timing at which large deals come in, but looking beyond this, we believe WANdisco’s platform for delivering significant, operationally geared upside has strengthened. The valuation demands significant growth and margins (our DCF suggests a five-year revenue CAGR of 40% through 2025, with EBITDA margins reaching 25%+). With WANdisco’s compelling market fundamentals, geared business model and rapidly strengthening roster of tier one partners, we now believe it has good potential to exceed this. The company’s strategic attractiveness should also factor in the valuation consideration.