Nutanix, after a recovery based upon faith that management had fixed its sales problems (despite the fact the market it created and supposedly dominated was growing at 60%+ - but still they had problems selling their product - which could be seen in regard to their numbers. They are constantly throwing more money at less sales efficiency - but ignore this many did) is crashed down 25% again and is yet…gulp…CHEAPER!
I wasn’t going to post on NTNX here since it is so out of favor with this board, but here is a cross post of what I posted this morning on one of the premium boards. I actually believe this quarter’s results and the guidance from NTNX are both pretty great and I took, what I believe to be a general misunderstanding of their results and report, as an opportunity to further add to my position
I know many people look unfavorably at NTNX are going to say “here we go again” or “I told you so”, but I don’t see the results or the outlook reported yesterday as anything other than really good.
They beat solidly on the quarter just ended, their move to subscription is way ahead of schedule (which is part of the reason that their revenue and revenue guidance are being misinterpreted, because there is less revenue upfront with subscription, but it is great for recurring revenue etc long term). Margins are improving faster than expected too. they said they are going to keep investing in their sales team, but slow hiring for non-sales folks which should help the bottom line and cash flow in the short term.
The biggest concern is that they don’t seem to be broadcasting backlog/pipeline this quarter like they have in the recent past, so that does give me slight pause.
If you have NTNX shares and are contemplating selling them, or are on the fence about buying, I highly encourage you to listen to the replay of yesterday’s investor earnings call. Management sounded extremely upbeat. the move to subscription, particularly its acceleration has somewhat of an impact similar to some companies that moved away from pass through revenue in recent years. It makes the comp’s seem less-good than they actually are. Yes, it makes the current revenue look only a few percent up from the comparative period, but as that move to subscription flows through the prior period comparisons over the next few quarters, after swinging from -1% growth at the end of last year to +1% last quarter, to +3% this quarter, and their future revenue growth, at the midpoint of guidance (which btw they have consistently been beating the high end of their guide in recent quarters) would mean +10% next quarter and +25% in the following quarter.
and to reiterate, that doesn’t mean their bookings need to suddenly grow 25% in six months, the bookings have consistently been growing at a much higher rate than revenue. Just a continued progression in bookings like they have been will lead to at least 25% revenue revenue six months from now. For a company that is already doing $350 million of revenue per quarter, (a lot more than most of the tech companies I am invested in), that will be an incredible growth rate if it goes back to 25-30% later this year and stays there for a while, which I think is very possible.
And note that this isn’t some sudden surprise or some grandiose unrealistic promise from management. This is consistent, even muted, compared to what they have been telling shareholders would unfold over the year.
Deferred revenue is now over $1 billion, which is great and almost half of the deferred revenue is short term and will hit revenue over the next 12 months.
This is far from a guarantee, but I think the market is really mis-reading the results here knocking the stock price down -25% this morning. Not to mention that at a market cap now of $4.7 million, Nutanix continues to be a prime target for a takeover. I hope that doesn’t happen because I think shareholders can be a lot better rewarded by them staying independent and publicly traded, but it wouldn’t shock me at all of someone tries of buy them for twice what they are selling for today.
Maybe I’m wrong, maybe this is a falling knife, but I added a significant amount of NTNX this morning right at the open. Last summer when the stock price was in the teens, I thought NTNX was the best place for my money and so far, even with this drop today, it has done really well since then. I can’t help but feel that NTNX could be my best performing investment over the rest of 2020 from here as well.