I just realized I posted most of my thoughts on NPI. so let me share a long post comprised of a couple of my takes. Feels like a week already since NTNX announced…gah.
"The biggest takeaway on NTNX for me is that my thesis was that mgmt had pounded the table for almost a year around the “$3b in billings by 2021” and that was modeled exclusively on HCI/Core growth, and did not include the newer Solutions. In the CC last night, they started walking that back a bit, which is telling because I assume the CFO was referring to total of $3b in billings, regardless if it was Core HCI or not. So either the new solutions are gaining very little revenue traction or HCI momentum truly did have a notable hiccup. Either way, broken thesis for me. Because once growth stops, the market assigns a lower P/S, so instead of thinking about a 6-8 P/S when NTNX hits $3b in billings, you are thinking instead of perhaps a 4-6 P/S when NTNX hits $2b in billings. Huge difference in projected mkt cap. Yes, I realize billings and rev are separate, but they track directionally the same.
Why did this lack of execution happen? In retrospect, it is very apparent that NTNX grew due to the laser focus their sales force had on pushing the market-leading HCI solution. To suddenly pivot and expect those same reps to push very different software/cloud solutions was in hindsight a huge miscalculation by mgmt. HCI sells like hardware…I don’t care if NTNX wants to wish away the hardware pass-thru…it sells like an HCI appliance. It is not ServiceNow or Workday or the VDI workload…HCI is infrastructure. Infrastructure will always be less valuable than Enterprise productivity SaaS/software, which is why I was fine with NTNX having “only” an 8 P/S, IF the company executed and hit their $3b in 2021 goal.
So you have a company that was previously executing that really dropped the ball, and you lose faith in mgmt. Very similar to NVIDIA and their CEO Jensen in Nov ER. Once you crunch that smooth sheet of aluminum foil in a ball, you can try all you want to smooth it back out, but it is always going to be damaged. That is how I feel about mgmt now.
Last thing: NTNX CEO purposely expanded the portfolio because he “didn’t want them to go the way of Blackberry” by only having (1) core product in HCI. So I applaud the reasoning and the foresight…he just didn’t properly enable sales to handle the vastly expanded portfolio. Sometimes the reason is that simple.
I sold most of my shares and moved it into AYX, since they are executing."
Here is another take, that is more granular on why/what could have gone wrong with sales and why Nutanix “SaaS” isn’t the same as ZS or NOW or OKTA, etc…, imo:
"Their Core business is HCI. Basically it is sold like a hardware appliance, regardless of whether Nutanix does hardware pass-thru or not.
It is not so easy to land and expand like with Elastic or MDB via developers, or AYX with business owners and data scientists, or with advertisers with programmatic spend on TTD’s platform.
Hindsight is always 20-20, but I should have done a better job pointing out that NTNX core business is infrastructure, and infrastructure is largely an afterthought to anyone outside of IT within the Enterprise. Developers don’t care, for example…they just want access to their workloads when and where they want. The workloads are more valuable, and thus garner the higher P/S ratios.
Another area I probably didn’t hit up enough was that Nutanix is competing, not just against other HCI vendors, but against standard storage vendor solutions and standard server/blade vendor solutions and against converged systems and against the public cloud.
But they were kicking butt, because they were laser-focused, and they simply expanded the portfolio too broadly too quickly. In most sales organizations, whether VARs or Vendors, you have specialist sales people for software vs hardware and further specialized within each.
Selling HCI was akin to selling a hardware appliance. That skillset is very different than selling Beam or Calm or Frame. Different audience too. When you sold Nutanix, you often had to go above the Storage Admin because they make a living being the resident “expert” on whatever standard incumbent storage platform existed (netapp, emc, 3par, hitachi, ibm, etc). So Nutanix HCI reps usually targeted the Dir of IT, or Mgr of IT, or lead Infrastructure contact, or VP of IT or CIO. Most IT reps don’t get a lot of at-bats, if any, with the CIO, in reality. So if you are trying to sell Beam (analyze your multi-cloud app spend) odds are the contacts you had for HCI aren’t the right fit. There is probably a Cloud team or it would be the CIO, or even the CFO if it is all about reducing cloud costs. If you sell Frame, you could be dealing with the legacy desktop/notebook leads and not your Dir of IT contact. Logistics and quality sales approaches really do matter. Yes, you need a good product in the first place. But the CEO admitted he “let chaos reign” which is all we really needed to hear I guess, to explain the lack of pipeline that led to a low forecast.
Amazon is really amazing, when you think this through. The ability to pivot in very different businesses is an art and a science and most companies can’t do it. Even TEAM, a highly celebrated company, capitulated to Slack when they couldn’t penetrate that market with their own project, then did a partnership where they agreed to shutter the competing division.
You can’t just say “we are going to be the O/S for the multi-cloud!” and hope your sales reps just figure out how to make that happen on the backs of an HCI hardware-ish appliance-ish sales motion dna.