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Cloud Stocks: Nutanix Needs to Define a PaaS Strategy

Posted on Tuesday, Apr 28th 2020

Current market conditions are taking a toll on most companies. Enterprise cloud computing player Nutanix (Nasdaq: NTNX) was no different. It reported its second quarter results recently that surpassed market expectations, but the weaker outlook due to the coronavirus conditions hurt the stock significantly. It fell 20% in the afterhours trading session post result announcement.

Nutanix’s Financials

For the quarter, revenues grew 3.4% from $335.4 million a year ago to $346.8 million, ahead of the market’s forecast of $341.5 million. Billings grew 4% over the year to $428.1 million. Net loss was $217.6 million or $1.13 per share, compared with a loss of $122.8 million a year ago. On an adjusted basis, net loss was $0.60 per share, better than the market’s estimated loss of $0.69 per share.

By segment, Nutanix’s Product revenues fell 10% over the year to $213.5 million due to 77.5% decline in hardware revenues. Support, entitlements & other services revenues grew 35% to $133.2 million. Total Contract Value revenues increased 14% over the year to $338.2 million.

Subscription revenues grew 69% over the year to $266.5 million and Professional services revenues grew 48% to $12.6 million. Non-Portable Software revenues fell 55% to $59.1 million as the company continued to focus on subscription-based revenues. Software and Support billings grew 12% to $419.5 million.

For the third quarter, Nutanix forecast software and support revenues of $300-$320 million, compared with the market’s estimated $352 million. Nutanix expects to end the quarter with a net loss of $0.89 per share, significantly wider than the market’s estimated loss of $0.74 per share. Nutanix expects to end the year with software and support revenues of $1.29-$1.36 billion, falling short of the Street’s forecast of $1.395 billion.

Nutanix’s Product Expansion

Over the past few months, Nutanix has been focused on transitioning to a subscription-based model. It is leveraging the subscription services to attract larger enterprise customers to its platform. In the last year, Nutanix has managed to attract 18 customers with lifetime spend of more than $20 million, compared with 12 customers a year ago.

It continues to target this enterprise market by expanding its product capabilities. For instance, it is going deeper with application life cycle management, containers, databases, and object storage within its DevOps product Calm. It is also strengthening its security capabilities by ensuring Zero Trust cyber security for both on-prem and off-prem offerings. Zero Trust security concept operates on the belief that organizations should not automatically trust anything outside or inside its perimeters and that machines and applications are already compromised. It recently hired a Chief Product Security Officer Indu Keri who will focus on encrypting, micro-segmenting, auditing and analyzing everything in an integrated approach to its Zero Trust security posture.

Last quarter, it also made generally available its hyperconverged backup product Nutanix Mine with Veeam and HYCU. The integrated data protection solution provides the power of backup software offerings with the benefits of its platform, including HCI for compute and block storage and files and objects for deep storage.

Nutanix allows developers to streamline the deployment of new and rebuilt Nutanix clusters using its REST APIs. It offers its developer community access to pre-defined code samples that operate on various languages including Python, C#, PowerShell and others. It, however, does not have an app-based platform strategy that allows developers to create and share apps within a marketplace. I think Nutanix will need to expand its PaaS capabilities to allow the developer community to become more engaged with its product.

Its stock is currently trading at $17.79 with a market capitalization of $3.5 billion. It was trading at a 52-week high of $43.71 almost a year ago. It has recovered from the 52-week low of $11.31 that it had fallen to last month amid the market turmoil.

This segment is a part in the series : Cloud Stocks


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