How is NTNX's competition faring?

Investment Analysis Clubs Saul’s Investing Discussions
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I’m trying to make sense of the light guidance given by management. I have no specialized knowledge of NTNX’s business but I am trying to get a sense if the upcoming shortfall is NTNX specific or if the businesses that they compete in are getting weak. I went to the latest 10-K from 9/24/18 and looked at the competition section:

Competition
We operate in the competitive enterprise infrastructure market and compete primarily with companies that sell software to build and operate enterprise clouds, integrated systems, and standalone storage and servers, as well as providers of public cloud infrastructure solutions. These markets are characterized by constant change and rapid innovation. Our main competitors fall into the following categories:
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software providers, such as Red Hat, Inc. and VMware, Inc. (“VMware”), that offer a broad range of virtualization, infrastructure and management products to build and operate enterprise clouds;
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traditional IT systems vendors, such as Cisco Systems, Inc. (“Cisco”), Dell, Hewlett Packard Enterprise Company (“HPE”), Hitachi Data Systems (“Hitachi”), IBM, and Lenovo, that offer integrated systems that include bundles of servers, storage and networking solutions, as well as a broad range of standalone server and storage products;
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traditional storage array vendors, such as Dell, Hitachi, and NetApp, Inc. (“NetApp”), which typically sell centralized storage products; and
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providers of public cloud infrastructure and services, such as Amazon.com, Inc., Google Inc., and Microsoft Corporation.

In addition, we compete against vendors of hyperconverged infrastructure and software-defined storage products, such as Cisco, Dell, HPE, VMware and many smaller emerging companies. As our market grows, we expect it will continue to attract new companies as well as existing larger vendors. For example, NetApp has released a solution aimed at the hyperconverged market. Some of our competitors may expand their product offerings, acquire competing businesses, sell at lower prices, bundle with other products, provide closed technology platforms or otherwise attempt to gain a competitive advantage. For example, HPE acquired SimpliVity Corporation and Cisco acquired Springpath, Inc., both of which were emerging hyperconverged vendors, in order to bolster their own hyperconverged product lines. Furthermore, as we expand our product offerings, we may expand into new markets and we may encounter additional competitors in such markets. Additionally, as companies increasingly offer competing solutions, they may be less willing to partner with us as an OEM or otherwise."

Based on the stock price performance of some of the competitors (RHT,VMW,NTAP) they all seemed to have been doing about the same till now. This would suggest that NTNX is or will be losing business to them, (as opposed to there being an industry-wide slowdown.) I don’t have any idea how much NTNX competes with each of the companies mentioned above but I can’t afford another mistake like INFN, where the supposedly “one bad quarter” was in fact actually the beginning of an 80% decline in the price of the stock.

I would love to hear from people who know the business if they think this earnings miss is just a speed bump or the beginning of a period of lackluster performance. One thing that management said that has me worried is that they admitted that they didn’t get the marketing spend right. My gut reaction was that “You’ve been in business for 10 years and you still don’t know how much you need to spend on marketing.”
Thanks for any thoughts.

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Based on the stock price performance of some of the competitors (RHT,VMW,NTAP) they all seemed to have been doing about the same till now.

I’m not sure what you are looking at. VMW did much better on the stock market than NTNX and posted more upbeat results yesterday.

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Thanks for pointing out VMW. The Yahoo Finance chart I looked at didn’t take into account the $27 special dividend that VMW paid out in late December 2018.

You mentioned that VMW posted more upbeat results yesterday. This is exactly what I am concerned about. If competitors are doing well and NTNX is not, it suggests that the problem is with NTNX, not the industry.

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Nutanix just grew deferred revenue by 63% - i don’t see competitors even quoting deferred revenues let alone matching that!

Just saying; it’s a complicated story and needs a deep dive.

Ant

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Hi Ant, do you see then that as a positive or further negative thing?

Thanks

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Great question, This has been discussed in great detail over on NPI. The summary is that management has greatly mishandled their market situation. When that occurs head for the exit.

comments such as “inadequate spend” on marketing and failure to add appropriate sales resources does not instill confidence in management. This is not the first time they used this excuse.

Their GAAP net loss increased from about $62 million up to about $128 million.

Obviously they are “cheap” from an EV/S perspective. There is a good reason for this, management is not up to the task of taking on competitiors such as VM ware, Redhat, and Cisco.

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Looking at the good side they grew their customer base by 920 customers this quarter, they now have 12,410 customers. Grew their million plus customers to 779 up 44% and grew subscriptions 112%. They did all this while cutting their hardware revenue in half. I think I agree with Ant. This is a more complicated story.

Andy

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Cisco, Paolo Alto Networks and VMware all posted solid growth this quarter. The general feeling is that Cloud is getting a second push in growth. VMware stock is posting record highs despite the ~20% dividend it paid on New Year’s Eve.

I have not studied the exact details of Nutanix’s business. And they’re a much smaller company, so they’ll be subject to much stronger gyrations of the stock. It comes with the territory of a growing company not making a profit. I wouldn’t pay too much attention to its day-to-day stock price.

Having said that, I mentioned before that it seems to me Nutanix is only focusing on two of the three components of HCI, virtual computing and virtual storage. Both established technologies. It seems they’re not competing in virtual networking, the area with the greatest growth ahead. IMO, that’s where the next Cloud war will be won.

I follow this board to keep a tab on these companies, but so far Nutanix seems a bit of a gamble to me that could fizzle if they can’t make the next step technologically. Or maybe they should merge with a company like Zscaler that does virtual firewalls, I think both need what the other one offers to compete over the long term and transcend being niche players. But obviously Zscaler is in the faster-growing segment of Cloud, where NTNX is in the slower-growing segment.

Mark

(Long VMW)

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