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Cloud Stocks: VMware Continues Buying Spree

Posted on Monday, Aug 31st 2020

Virtualization infrastructure provider VMWare (NYSE:VMW) recently announced its second quarter results that surpassed market expectations. It experienced strong momentum in its SaaS portfolio that offset the decline in its on-premise portfolio.

VMware’s Financials

VMware’s second quarter revenues grew 9% to $2.88 billion, ahead of the Street estimate of $2.8 billion. Non-GAAP EPS was $1.81, ahead of the Street’s forecast of $1.45. Net income was $621 million or $1.5 per share compared with $334 million or $0.81 per share a year ago.

By segment, revenue from License segment declined 7% to $719 million and Services segment grew 7.4% to $1.5 billion. Strong demand for Carbon Black, VMware on AWS, and the VMware Cloud Provider Partner (VCPP) business drove 44% growth in Subscription and SaaS revenue to $631 million, accounting for 22% of total revenue.

VMware’s on-premise portfolio was impacted by reduced spending due to the pandemic. NSX license bookings declined in the mid-single digits and vSAN license bookings declined in the low single digits. End User Computing (ECU) license bookings declined in high single digits.

VMware did not provide guidance for the third quarter. VMware’s parent-owner Dell recently filed their considerations of a potential VMware spinoff. VMware CEO Pat Gelsinger clarified during the earnings call that any potential spinoff would not occur prior to September 2021.

VMware’s New Offerings

VMware continues to further the Company’s multi-cloud strategy with a new cloud platform, cloud services, and cloud management offerings. It is focusing on cloud monetization and cloud migration as well as the cloud platform and ecosystem. It has reached general availability status for new first party services offerings with Google Cloud and Oracle. Microsoft unveiled its next-generation Azure VMware solution earlier this quarter. VMware announced the availability of the second generation of VMware Cloud on Dell EMC that delivers simple, more secure and scalable infrastructure as a service to customers on-premise data center and edge locations.

VMware launched new capabilities for VMware Cloud on AWS for app modernization, business continuity and resiliency, and cloud migration. It expects the recent Datrium acquisition to bolster the VMware Site Recovery offering.

A new focus area for VMware is AI and ML. It recently introduced VMware vSphere BitFusion to enable enterprises to deliver elastic infrastructure on-demand for AI and ML applications.

VMware is also focusing on 5G. DISH has chosen VMware Telco Cloud to help deploy the world’s first 5G, cloud-native Open Radio Access Network. The platform will help bring to life the first network in the US to combine the efficiency of the distributed telco cloud, public cloud and private cloud environments while delivering consistent, low latency edge computing. VMware is also collaborating with Intel on an integrated software platform for virtualized Radio Access Networks to accelerate the rollout of both existing LTE and future 5G networks.

VMware’s Acquisitions

VMware this year has made a series of technology acquisitions including Octarine, a cloud-native security platform that will be integrated into VMware Carbon Black Cloud. Founded in 2017, Octarine had raised $9 million in funding from Accel, Battery Ventures, Liberty Technology Venture Capital, and Sorenson Capital. Terms of the deal were not disclosed.

In June, it acquired Lastline, a pioneer in anti-malware research and Artificial Intelligence-powered network detection and response. It will be integrated into NSX to provide a complete, internal firewall capability, opening new opportunities for its network virtualization and security platform NSX. Founded in 2011, Lastline had raised $52.2 million from Thomvest Ventures, Redpoint, e.ventures, Barracuda Networks, NTT Finance, and Dell Technologies Capital. Terms of the deal were not disclosed.

In July, VMware acquired The True Visibility Suite team and products from Blue Medora to enable VMware vRealize Operations to provide visibility and insight into customers’ broad data center and hybrid cloud environments. Founded in 2007, Blue Medora had raised $32.5 million from Edison Partners, First Analysis, Tappan Hill Ventures, and Lewis & Clark Ventures. Terms of the deal were not disclosed.

Its latest acquisition was that of cloud-based disaster recovery service provider Datrium to expand VMware Cloud on AWS’ Site Recovery offering. Founded in 2012, Datrium had raised $170 million from Samsung Catalyst Fund, Icon Ventures, New Enterprise Associates, and Lightspeed Venture Partners. Terms of the deal were not disclosed. Early this year, I had interviewed the CTO of Datrium Sazzala Reddy on the company’s journey.

While VMWare had made small strategic acquisitions this year, it made two large acquisitions last year of Pivotal for $2.7 billion and Carbon Black for $2.1 billion. During Q2, Carbon Black had strong product bookings and customer count increased to over 20,000 from 5,600 when it was acquired. These acquisitions have helped it build out five franchise platforms of modern apps, multi-cloud, networking, digital workspace, and security. It will be interesting to see the impact of these two acquisitions on its cloud strategy in the future.

Its stock is trading at $146.9 with a market capitalization of $61.2 billion. It touched a 52-week high of $173.37 in November last year and a 52-week low of $86 in March this year.

Photo Credit: sporst/Flickr.com.

This segment is a part in the series : Cloud Stocks


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