NTNX - Bert's latest Take now on SA

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Bert’s latest NTNX take now posted publicly on Seeking Alpha:

https://seekingalpha.com/article/4270619-nutanix-misundersta…

I know I am one of the very few that still think NTNX can outperform here. I had added some shares (and LEAPs) this morning after reading Bert’s article this weekend when it was sent to subscribers.

Especially with NTNX’s further 10% drop on Friday, I just can’t help but see NTNX as a potential steal.

Over the past four quarters, Nutanix has generated nearly $1 billion of gross margin dollars (not revenue, but margin!), yet its market cap is only around $4.8 billion. Over they last year, they are already generating more GM $ than I project AYX, NEWR, ESTC, MDB, ZS, OKTA, or SMAR to generate three years from now, even assuming that each of those companies continues to grow at 40-60% growth rates each of the next three years (I project their growth rates to decrease slightly each year, from where they are now).

I actually think that NTNX could grow only in the high single digits each of the next few years and its stock will outperform many others, considering today’s low valuation.

However, while I do not expect they are going to necessarily jump to 50%+ hyper growth, I do think they could be growing in the 20-30% range a year from now which should reward shareholders handsomely, even if institutional buying is slow to get back on the train after being burned earlier this year.

Either way, it is likely that it will be another 6 months or more before much happens with the stock, so I don’t blame anyone sitting on the sidelines for a while and watching it play out. Personally, I prefer to keep skin in the game as I think the potential is here for it to move quickly when things turn and I am optimistic enough to not want to miss that first move if it does.

To me, this is a very different story compared to PVTL where we could see the lack of new customers for several quarters foretelling what was to come with Pivotal.

A lot of very smart people on this board are not optimistic on NTNX right now, so I very well may turn out to be wrong, but my chips are still on the table, and I just added to my stack. I get why this looks like a falling knife to many, but I just don’t think it is going to play out that way.

-mekong

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I disagree with Bert on this one.

The first of these, and completely straight forward, is that the company had $8 million less of hardware revenues and bookings than it had forecast. This should be of no consequence to investors. Hardware revenues are pass through and have no gross margins.

Sure, but they still run their private cloud on that hardware. Less hardware, less SaaS subscriptions. It would have been fine if this was expected and the hardware sales were instead supplied by their partners. However, these were sales that they had themselves expected and fell short on.

The other factor is the vexed issue of the transition to subscription billings.
[…]
Some time ago, the company announced its transition to subscription license arrangements and that transition has gained in velocity over the past year.
[…]
Fast forward to this most recent quarter. 65% of total bookings and 59% of total revenues are coming from subscription arrangement.
The sequential growth of subscription revenues in Q3 was huge-essentially subscription revenues were replacing revenues from non-portable license arrangements.

So it’s not really growth, right? Seems like new type of contract for the same customers buying the same product/service. In Q2 they reported having 800 large customers and 17 x-large customers while in Q3 they reported 850 large and 18 x-large customers. They don’t give quarterly numbers per customers, rather a more disputable “lifetime” revenue per customer. 1 x-large and 50 large customers represent $65 milion “lifetime” revenue. If I generously define “lifetime” as 3 years, then they added $5.5 mil. revenue from new customers QoQ in Q3. If “lifetime” means 5 years, then they’ve added $3.5 mil. QoQ. That’s not much growth there.

They boast adding 600 customers in Q3 but you can’t see much of that reflected in the top line even if you adjust it for the “pass through”.

I think what’s really ailing them is that they are unable to sell their subscriptions as well as they hoped. It’s not surprising for me, I’ve written a couple of times already on the failures of their marketing. This company is simply not worth the valuation of a high growth stock.

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“essentially subscription revenues were replacing revenues from non-portable license arrangements.”

So it’s not really growth, right? Seems like new type of contract for the same customers buying the same product/service.

Bingo. When I was at Oracle (HW, not SW) 3+ years ago they were doing the very same thing - moving legacy customers to cloud account, mostly by strong-arming tactics, and claiming that their cloud was “growing”. #smh

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They boast adding 600 customers in Q3 but you can’t see much of that reflected in the top line even if you adjust it for the “pass through”.

Great post Stenlis. Bjurasz highlighted one of your very good points. I’ll highlight another. Adding 600 customers doesn’t mean anything unless they’re of a decent size. We need to see revenue moving in the same direction. What if each of these new customers are spending $1,000/year or something? Adding 600 customers could be just as meaningless as Pivotal’s adding 7 or whatever.

I think what’s really ailing them is that they are unable to sell their subscriptions as well as they hoped. It’s not surprising for me, I’ve written a couple of times already on the failures of their marketing. This company is simply not worth the valuation of a high growth stock.

I concur.

Bear

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I’ve received some Nutranix marketing in the past - “Come see the new Star Wars movie, but sit through a 30 minute presentation first”.

It seemed pretty amateur, and unlikely to be effective - kind of like the time-share marketing I was subjected to last time I took a vacation in Mexico. It puts me on-guard.

I took a day-long class with Cassandra (like MongoDB), and they did it right. Explained their technology, brought in lunch, handed out t-shirts. They were able to spend most of the day explaining their technology, and their audience was committed - they weren’t just there for a free movie.

Still better than the Motley Fool emails I get, but that’s a different topic.

David

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It seemed pretty amateur, and unlikely to be effective…I took a day-long class with Cassandra (like MongoDB), and they did it right

Different audience, different approach. You create curiosity with the first and the guys who take one day training, already sort of committed.