Enterprise cloud computing player Nutanix (Nasdaq: NTNX) recently announced its second quarter results that outpaced market expectations. The recent Broadcom VMWare acquisition is causing a lot of turmoil in the industry that is helping players like Nutanix.
Nutanix’s Financials
For its quarter, revenues grew 16% to $565.2 million, ahead of the market’s forecast of $551.8 million. EPS came in at $0.46, compared with $0.12 a year ago and ahead of the Street’s forecast of $0.29. Annual Recurring Revenue (ARR) grew 26% to $1.74 billion, and Annual Contract Value (ACV) Billings grew 23% to $329.5 million.
By segment, Nutanix’s product revenues grew 20% to $299.7 million while revenues from support and other services grew 13% to $265.6 million.
For the current quarter, Nutanix forecast revenues of $510-$520 million compared with the market’s estimates of $510 million. It expects to end the year with revenues of $2.12-$2.15 billion, which was also in line with the Street’s consensus of $2.12 billion.
Nutanix’s VMWare Opportunity
Last year, Broadcom had announced the $69 billion acquisition of VMWare. Broadcom is a global designer, developer, and supplier of a broad range of semiconductor, enterprise software, and security solutions. Last November, it announced plans to add VMWare to its portfolio after 18 months of regulatory delays. The acquisition was aimed at building a leading infrastructure technology company that would focus on enabling global enterprises to adopt private and hybrid cloud environments. But within a few months of the acquisition, Broadcom’s actions on VMWare’s product portfolio appear to be a boon to Nutanix.
Since the completion of the acquisition, Broadcom has announced 1,800 layoffs of VMware employees, ended perpetual software licenses for VMWare customers, discontinued nearly 60 stand-alone products, and shifted to a bundled packaging model. Earlier last month, it also announced plans to terminate all of VMWare’s partner agreements with VMware resellers and service providers, thus assuming primary sales responsibility for VMware’s largest 1,000 accounts.
While all these actions may be concerning for VMWare, they have opened a wide opportunity for Nutanix. Nutanix competes with VMWare within the virtualization space. Broadcom’s actions have caused anxiety amongst VMWare’s customers. Add to that the possibility that Broadcom’s bundled offering will be at a higher price point than what customers may be willing to pay. Nutanix’s management believes that while the larger organizations may still take time to make these decisions, the smaller ones would be willing to switch to them at a faster pace. Nutanix is looking to attract these customers by increasing their advertising spend. Nutanix is not clear how big of a market share it can attract away from Broadcom, but it believes that the potential exists.
Its stock is currently trading at $65.43 with a market capitalization of $15.9 billion. It hit a 52-week high of 66.28 this week and a 52-week low of $23.34 in May last year.
Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.
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