NTNX Apologies and Updated Thoughts

Hi all,


Let me get it out of the way. I apologize if any of my previous writing helped persuade people to take positions in NTNX. I can assure you, I feel plenty bad myself, and was quite blindsided with yesterday’s earning report. Unfortunately, sometimes these things happen. It helps to have most of your other stocks sky rocketing, but still stings very badly, as it was my second largest holding and I had a decent amount of options on the position.

However, I wanted to take a few minutes and share some thoughts on the current quarter, signs I may have missed, and what I am doing now:

Thoughts on Q2 2019 Earnings Report:

  • Without rehashing much of what has already been written, I thought the current quarter was okay, not terrible, but not good. Among the most important metrics I track: S&S revenue growth (42%), S&S billings growth (37%), deferred revenue (63%), and new customer additions (almost 1,000). Obviously S&S billings dipping under 40% in a seasonly strong quarter is concerning. I did like the deferred revenue and customer additions though, and think 12,000+ customers is an incredible base to sell into.
  • I agree with Dreamer and others, if I had to make a guess as to the real problem, I believe they drastically underestimated the complexities of selling a host of new products. It’s confusing to investors, and I’m sure to new sales targets. Having seen it first-hand, when the sales team isn’t extremely focused, well, “chaos will reign.” And to go a step further, this means their is a management issue. Of course, that ultimately goes to the CEO, but to be fair, sometimes companies stumble, or have the wrong person in the wrong role. How quickly they can adjust/adapt is the true testament of great leadership.
  • I was a bit annoyed / confused about the lead-gen excuse. First off, they added 1,000 new customers, unless this number has fallen off a cliff in Q3, that demonstrates some pretty solid lead-gen. If they’re referring to cross-sell / up-sell opportunities, that is management’s fault plain and simple, and not something an extra $20m can solve in one quarter. Again, if I had to bet, what they realized is that they need to further differentiate the sales team by products, even within accounts. No one account executive can sell 10+ different products into an organization.
  • Lastly, Dustin and Dheeraj sounded quite dejected on the call. Part of it is explainable, but another part of me went somewhere else very quickly. It’s probably just my own cognitive bias, but I’m wondering if part of their feelings were a realization that changes may be on the horizon. Either a new President / COO, or more so, that this will give the board an opening to potentially sell the company. Again, it’s easy to hold off takeover offers when the stock is rising and the company is executing perfectly. It’s much harder when the company could use some sales help and more customers. This was just a fleeting thought I had, but I will keep an eye on this in the next quarter or two.

This section is mostly for myself, but there were a few small signs that I overlooked, that in hindsight seem more ominous than innocent:

  1. NTNX was not comparing apples-to-apples in the title of their press releases. I know this seems small, and at the time I attributed it to the hardware/software and subscription transitions, or just a style choice to highlight different things, but they kept moving the goal posts in their press releases. Let this be a warning sign going forward that if a company is not highlighting the most important metrics consistently, they may be trying to divert attention.
  2. NTNX lost two founders in the last two years (Mohit Aron and Sudheesh Nair). Particularly, Sudheesh Nair, who was President, and presumably his absence left some pretty large holes to fill.
  3. Complexity of a sale: This is an important topic, and probably deserves its own post someday, but one of my biggest takeaways in the last few months is adding as a criteria, ease of sale. Specifically, how easy is it for companies to setup a new customer and expand with the same customer. Said another way, not all hyper-growth is the same. That is quite obvious with hardware vs. software, and even SaaS vs. non-recurring, but even within SaaS I’m now going to pay more and more attention to this difference. NTNX, as many have pointed out, is not an easy initial setup. And potentially involves hardware (or hardware adjustments) to expand for many of their products. This differs drastically from TWLO or TTD, which involve very little incremental setup to expand within an account.

Next Steps:

  • Given all of the above, this may surprise people, but I didn’t sell a single share today. In fact, I added slightly for a short-term trade (I know, I’m insane, but the price action is incredibly oversold). That being said, I have every intention of reducing this to a medium-sized position in the next few months as the opportunity presents itself. Today, was capitulation, with people just exiting the position out of disgust. It traded 20x normal volume.
  • If you remove all the emotion, and all the anger at management (which I’m plenty upset with), you still have quite an under-valued stock. Yes, yes, everyone trades on different metrics and for different time horizons, but this is STILL a company which should hit $1.3-1.5b in sales this year, trading at a EV of $5.5b. That’s a EV/S of <4. And before the chorus of posters ready to puke all over their keyboards as I call NTNX “under-valued”, I’m bringing it up mostly in the context of having acquisition potential / a floor to the share price.
  • I know Saul advises to move on immediately, and who am I to question him, but I’ve always tried to wait for an appropriate exit. I think the stock will bottom, rebound back into its previous trading range of $36-46, and stay there until something material changes (Q3 or Q4). So…that’s what I’m doing, I’m going to start slowly reducing my position from a Tier 1 holding to a Tier 2 or 3 status (depending on how Investor Day goes on March 20th).

If I wasn’t clear enough up top, I apologize for being wrong on this one. I guess you can’t win every bet. And this was a nice stomach punch to knock out some much-needed humility.

Lastly, if this wasn’t a good enough reminder, please don’t follow my thoughts, or anyone else’s for that matter. They are only one man’s opinion. Please do your own research, make mistakes, feel the pain of those mistakes, and hopefully never make them again! At least that’s what I’m telling myself on a sad Friday.



Hi Stephen

Thanks for the great post, but an apology is never necessary.

Investing is a bit like mountain biking. At some point, you know you’re going to fall off. You know it’s going to hurt, there’s going to be blood, but the rest is so rewarding, you do it anyway.

If we didn’t get losses every now and again… It would be like putting your money in a bank account. And earning 0.1% interest.

I didn’t sell any shares either. I haven’t read the conference call properly and will wait for their investor conference.

They stuffed up, I think that’s clear, the question now is… Are they capable of recovering? Is this a blip on the longer term or a fundamental flaw?



Adding one criteria to my ‘watch more closely’ list:

“2) NTNX lost two founders in the last two years (Mohit Aron and Sudheesh Nair). Particularly, Sudheesh Nair, who was President, and presumably his absence left some pretty large holes to fill.”

As always, YMMV. Thank you for your contribution to the board. Apology unnecessary, accepted if that helps you. As I guy who bets on the jockeys as much or more than I bet on the horses, well, the loss of those two should have flagged me before this quarter or even sooner.

Carpe Diem.

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Hi Stephen,

I’m one of the guys who got talked into getting back into Nutanix, but that’s not your fault, and no need for apologies. I take responsibility for my own actions, and it didn’t seem so wrong at the time. However, I am sorry to say, and hesitate to say, but I believe your advice to sit it out for what might be 6 to 12 months, is a big mistake.

Hiring new salespeople now and starting to train them on complicated products won’t bring wonderful new sales 3 months from now, and probably not even six months from now. And this is a management that really messed up. And the company is in the middle of tearing up one whole business plan and trying to establish an entirely different one with very complicated products! Man, it’s a train wreck!

Selling and putting the money in Twilio, Alteryx, Zscaler, Elastic, The Trade Desk, Okta, etc all of which seem to be category killers, growing at huge rates, and which don’t have the ENORMOUS ISSUES that Nutanix does, instead of sitting around for 9 months waiting to see what happens with Nutanix, hoping that they get their act together, and trying to prove to myself that I was right all along, seems to me like a no-brainer, even if these other companies are already up. They are up for a good reason, after all. Or even putting some of the cash in Coupa, Zuora, or Docusign. Just my opinion and you can ignore it if you wish.

I think of it not as “Nutanix”, that I have a position in and had great hopes for, but as 8% of my portfolio “asset cash” (5% after the drop), and do I want to leave it as dead money for a year, or do I want to place it in rapidly growing companies which won’t be dead money at all but growing money. That’s just the way I think about it.

(I sold all my Nutanix Friday, starting in the pre market at $38.50 and all the way down to $34.25. I bought some of the above and they all finished above my purchase prices. Nutanix finished below all my sell prices.)



And, by the way, I realize that they may get acquired for their technology at this point, which would get holders part of their money back, but I don’t buy companies on the hope that they will be acquired.


This is an important topic, and probably deserves its own post someday, but one of my biggest takeaways in the last few months is adding as a criteria, ease of sale.

After the fact reasoning. The sales efforts are no more complex than any of their competitors or for other products. It is simply, the company didn’t invest enough in sales force, or their internal projections didn’t anticipate the kind of growth they are experiencing hence they have not invested. The time to ramp up for the new sales force is not different compared to SaaS companies or other competitors.