Nutanix's stock slides, despite early results beating expectations

Nutanix’s stock slides, despite early results beating expectations

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Shares of Nutanix Inc. were trading lower late today after the company reported preliminary second-quarter financial results that topped Wall Street’s expectations.

Nutanix’s stock rose as much as 6% after-hours, only to do a complete reversal to decline more than 4%. That happened after the company said its second-quarter revenue rose 18% from a year ago, to $486.5 million.

The company didn’t report earnings, but instead offered insight into its annual contract value billings, which rose 23%, to $267.6 million for the quarter. ACV billings is a key metric used by Nutanix that’s defined as the sum of the ACV for all contracts billed during the given period.

The numbers came in ahead of expectations, with Wall Street forecasting earnings of 11 cents per share on revenue of $465 million and ACV billings of $247.3 million.

Nutanix said in a statement that it is only offering preliminary results at this time because its accounts were not audited. That happened after a discovery that certain evaluation software from one of its third-party providers was used instead for interoperability testing, validation and customer proofs of concept over a multiyear period. The Audit Committee commenced an investigation into this matter, which is still ongoing, hence the full results are delayed. The company said it doesn’t think it will have a “significant impact on the fundamentals of its business and overall prospects.”

Nutanix’s software-defined hyperconverged infrastructure or HCI stack integrates compute, storage and networking components into a single appliance or cloud service. Although it still sells physical gear, the company has attempted to shift away from its hardware roots, putting more focus on its “hyperconvergence” software that can run on third-party servers and systems.

Nutanix President and Chief Executive Rajiv Ramaswami (pictured) hailed the company’s “solid second-quarter financial performance,” saying it illustrates the strength of its subscription-based business model. “The value proposition of our platform is resonating with customers as they look to tightly manage their IT and cloud costs while modernizing their data centers and adopting hybrid multicloud operating models,” he added.

NAND Research analyst Steve McDowell told SiliconANGLE that Nutanix’s results once again demonstrate the health of the company, which has now beaten expectations for an impressive 15 straight quarters. He explained that, while part of this is from Nutanix’s normal business, it’s also benefiting from an uptick in new customers who would otherwise have bought products from VMware Inc. instead.

“IT buyers have a lingering concern about what’s going to happen with Broadcom’s looming acquisition of Vmware,” McDowell pointed out. “Ravij acknowledged as much during the call, saying that Nutanix is having a significantly higher level of engagement with existing VMware customers. Nutanix is aggressively pursuing VMware customers. I expect that this will continue to be the case through the rest of 2023 until the dust starts to settle on the VMware deal.”

During the quarter, there was speculation that Nutanix had emerged as an acquisition target for technology giant Hewlett Packard Enterprise Co., with a hefty price tag of more than $7 billion floated around. Initially, the rumored interest sent Nutanix’s stock higher, but a spokesperson for HPE later told media that the company was not holding talks about a possible acquisition, and the matter appears to be closed.

While investors wait for Nutanix to solve its accounting problems and deliver its full financial results, the company did at least offer guidance for the third quarter. It said it’s forecasting ACV billings of $220 million to $225 million on revenue of between $430 million and $440 million. That compares well with the analyst consensus estimate of $219.6 million in ACV billings and $425.3 million in revenue.

For the full year, Nutanix is guiding for revenue of between $1.8 billion and $1.81 billion, versus the consensus estimate of $1.78 billion.

McDowell said the reason for Nutanix’s after-hours stock drop was likely due to disappointment with the company’s guidance, even though it came in above expectations. The problem for Nutanix, he said, is that it tends to sell new licenses on new servers, so its fortunes closely follow that of the server hardware market.

“Both Dell and HPE told us in their earnings that the server market is going to be a rough one during the first half of the year,” McDowell explained. “Nutanix acknowledged that fact and also mirrored statements by Dell and HPE that enterprise sales cycles are taking longer. All of this impacts short-term business, but Nutanix will be fine in the long-term. It has a loyal customer base and a solid product portfolio.”

Photo: SiliconANGLE

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