HCP - HashiCorp - Still Not Cheap; Competition And Pricing To Weigh On Growth; Sell Now

• HashiCorp is the latest edition of an open-source technology to hit the market, following successful companies such as MongoDB/Elastic and not-so-successful Cloudera/JFrog/Confluent/GitLab.
• Open-source software companies have had mixed success and dominate the infrastructure business, given low initial barriers to entry, but progressively find it harder to displace/compete with incumbents.
• VMware and Red Hat dominate the infrastructure software business and use their installed bases to stifle newer open-source offerings by bundling and lower prices eventually.
• HashiCorp is expensive, dropping 52% below its IPO price of $80. It is currently trading at 14x sales versus the historical valuation range of 3x-10x before the pandemic.
• We believe there is another 25-35% downside from the current levels. We expect HashiCorp to trade down to $20-$25 levels or about 8x EV/Sales, in line with the historical average.

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