Not Commented on Critical Pivotal Data Point

On NPI board the question was raised as to how Pivotal can outperform with only 25% or so revenue growth. I explained, by using example, that over a three year period it is not unlikely that gross profits may double or triple.

This quarter revenue was up 28% but gross profit increased by 54%! Basically at 2x the rate of revenue growth. That factor will only accelerate the ore subscription dominant the income statement becomes. 90% margins on subscription, 24% gross margins on services.

As I concluded on NPI, as the question was how will the market even want to give it a higher valuation with such slow revenue growth, revenue growth may be slower, but gross profits will grow far more rapidly than revenues. And this quarter is just an example of that, and this hopefully will accelerate. So that even if revenue growth in total stay in the 20s for awhile due to the valuable (to its customers) service component, gross profit is going to grow very rapidly, and it may accelerate in its pace pending on how fast subscription revenue continues to grow.

That is the economic data point that is the substance behind the very large leverage that Pivotal’s business has been producing and has the potential to produce into the future. And it is one data point that any analyst can point to when asked why are you investing i a 20% growing company.