Why Hortonworks, Inc. Stock Leaped 27% in August

What happened

Stock in big data software provider Hortonworks, Inc. (NASDAQ: HDP) rose 26.8% last month, according to data from S&P Global Intelligence.

So what

Hortonworks shares jumped 18.4% on Aug. 4, the first trading session following the company's release of second-quarter 2017 results after the close of trading on Aug. 3. The organization posted an extremely strong revenue increase of 42% year over year and revised full-year expected revenue from a range of between $235.0 million and $240.0 million to a specific target of $247.0 million.

The balance of deferred revenue, an important barometer of software sales, was 64% higher at quarter end than in the comparable prior-year quarter. In addition, the company reported an operating loss of $54.5 million over the three months, comparatively better than the $64.3 million loss booked in Q2 2016. Through the first six months of the year, Hortonworks has recorded a loss of $110.9 million, an improvement over a loss of $129.9 million incurred in the first two quarters of 2016.

Brisk revenue, which is outpacing the growth in operating expenses, is showing up in the cash-flow numbers. Year to date, Hortonworks has a net operating use of cash (i.e., operating cash burn) of $20.7 million, a significant improvement over a net operating cash use of $50.0 million during the same period last year.

The company emphasized in its earnings release that an extension of its partnership with IBM announced in June would scale the reach of its open-source flagship Hortonworks Data Platform, or HDP. Hortonworks will integrate HDP with IBM's Data Science Experience, selling the combined product as a data science platform with advanced analytics, statistics, and machine-learning capabilities to developers. Management went into some depth on this new revenue stream during the company's earnings conference call, which contributed to the enthusiasm driving Hortonworks' stock up further during the rest of the month.

Now what

Looking ahead to the back half of the year, a key focus for investors will be the state of the organization's cash flow. Management has predicted that its quarterly cash-flow burn will hit zero by the end of the year, paving the way for positive cash flow in 2018. Those seeking a third-quarter benchmark can expect a cash burn of somewhere between $11 million and $14 million, which CFO Scott Davidson suggested as a reasonable expectation during the company's Aug. 3 earnings conference call.

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.