NTNX opportunity on today's drop?

In another thread, Tinker commented on Nutanix:

Nutanix is informative. They are at ~6x this year’s revenues, yet growing at 50% a year (this year’s illusion due to hardware disappearing being excluded) with enormous market ahead of it, and is a leader in a duopoly with no one else but Nutanix and VMWare in the contest. Dell’s leading hyperconverged product are the servers it sells with Nutanix on it (their #1 seller, of their 3 different products they sell into the market), and yet their price to sale is less than VMWare at this point in time. Why?

Who can say for sure, but I think I figured it out. But will probably need to wait until tomorrow as I have updated myself on this market and where it is going and how it is different today than it was two years ago, and yet, really, how nascent this market still really is.

Having opened a new (1/4 sized) position recently at mid-52 (I also think the analyst consensus on earnings seems to be wrong due to the HW comps) and seeing it drop another 6.5% today, I’m curious. Since it’s not a full position, I’m happy to add to it on such a drop and reduce the cost basis, but with such a precipitous drop in one day, there’s usually something behind it. Is this still fallout from misunderstood earnings? Maybe we add an extra day to the 3-day rule because of the hurricane and peoples’ attention being pointed elsewhere?

Tinker, what did you figure out?

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I’ve bought NTNX in 4 installments (first batch on August 1) and I keep chasing it down. Its my worst performer but now makes up a medium sized allocation at 4.8%. Torn between adding more and wondering if I am catching a falling knife.

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Having opened a new (1/4 sized) position recently at mid-52 (I also think the analyst consensus on earnings seems to be wrong due to the HW comps) and seeing it drop another 6.5% today, I’m curious. Since it’s not a full position, I’m happy to add to it on such a drop and reduce the cost basis, but with such a precipitous drop in one day, there’s usually something behind it. Is this still fallout from misunderstood earnings? Maybe we add an extra day to the 3-day rule because of the hurricane and peoples’ attention being pointed elsewhere?

I had a small position from last year but started adding after a recent bullish discussion here. Growth is not slowing as it seems. As it turns out, I was a little early buying in the 50’s. So I’ve added more today. It’s now my #3 position.

It would be interesting to hear what others think but I doubt much has changed since the last discussion just over 2 weeks ago.

dave

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I too have been baffled by today’s drop. A few folks on StockTwits have speculated that perhaps a secondary offering is coming. I have no clue if that might be the case. I wasn’t aware of any imminent cash needs for Nutanix.

I added to my Nutanix position this morning, in a bit of a risky manner, using Oct 2018 expiration call options…I also perused the brand newly released 2021 strikes. Enough with the options discussion, since that is verboten…I’ll leave it as saying that I added to my long NTNX position within the past 15 minutes.

-volfan84
long NTNX…the far and away laggard (to-date) from the just-before-Memorial Day unofficial BBN list I put together

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I’m all in the red today and I believe this is just a reaction to trade and China. And if I’m correct, I think its just a broad reaction and investors are selling off. And if that is true, then it has nothing to do with NTNX as a business other than the risky growth stocks will get hurt more than the more stable, larger companies. Meaning I’ve almost, almost talked myself into buying more on this dip…

https://www.marketwatch.com/story/nutanix-stock-falls-on-rep…

Here is reason for drop. Google rumored to be offering hyperconvergence product. Except of course it comes with Google lock in, and is not even on the market yet.

So there you go.

Tinker

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Here is reason for drop. Google rumored to be offering hyperconvergence product. Except of course it comes with Google lock in, and is not even on the market yet.

With a $100+ Billion rainy day fund sitting in the bank, Google may as well just buy Nutanix outright.

Matt

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https://cloud.google.com/cisco/

Btw, Google already offers this product, such as the tie in with Cisco, and Nutanix has a partnership with Google to create the same (but better, and with far more customers).

Google Cloud Platform’s new partnership with Nutanix, announced last week at the Nutanix .NEXT conference, at first glance seems to be a win for both companies. The agreement will see the companies’ enterprise cloud environments merged and will include a new edge-processing IoT platform from Nutanix, TensorFlow, for Google-based applications.

Google, of course, had built the largest cloud on the planet long before the word “cloud” was being bandied about. The trouble was, it was a custom private cloud built to meet the needs of only itself. By the time the search company decided to get in the public cloud game, Amazon had a six to eight year head start and had already built AWS into a company with a billion dollars of annual revenue in its sights – if it hadn’t reached that amount already.

And although Microsoft Azure started at about the same time as GCP, Redmond had an advantage in that it already had deep business relationships with the enterprise, and enough VAR partners to populate a small country.
To play catch-up, Google has spent billions of dollars annually to build its network of data centers, hardware, and telecommunications infrastructure, as well as laying a network of terrestrial and underwater fiber cables. According to an article published a couple of months back here on Data Center Knowledge, last year it shelled out $10.9 billion in capital expenditures, much if not most of which went to building its infrastructure.

But although Google has built its infrastructure enough to now effectively compete in most global markets, it’s paying the price for being late to the game. As Gartner VP Michael Warrilow told Data Center Knowledge back in March, Google Cloud Platform is “the third horse in a two-horse race, but it could well become a three-horse race. They’re doing all the right things. They’re enterprise-scale, but are they enterprise-friendly? And the answer is, that’s still a work in progress.”

The new partnership with Nutanix might be a key component – if not the key component – to making GCP “enterprise-friendly.”

Like Google – and everyone else for that matter – San Jose-based Nutanix has its eyes on the enterprise and specifically the hybrid cloud. It’s been an innovator in the data center arena, and a pioneer of both hyper-converged infrastructure and software defined storage. The company offers solutions like Calm, which allows for the easy shifting of workloads from on-prem to public clouds as needed.

"Hybrid Cloud needs be a two-way street,” said Sudheesh Nair, Nutanix’s president in a day-of-announcement press release. “The strategic alliance with Google demonstrates our commitment to simplify operations for our customers with a single enterprise cloud OS across both private and public clouds – with ubiquity, extensibility and intuitive design.”

Until Google, Nutanix’s most important partnerships has been with Dell, (which now owns VMware, AWS’s chief hybrid cloud partner) which distributes Nutanix’s stack on its XC Series servers. Lenovo is also a partner, and introduced its ThinkAgile SX for Nutanix last week, also at the Nutanix .NEXT event.

The deal with GCP will fill a sweet spot and allow it’s cloud OS to span private to public with the click of a mouse, employing Kubernetes on-prem and Google Container Engine in Google’s cloud. Also, by utilizing it’s Calm product for GCP, users will have a single control plane for managing applications between GCP and local cloud environments, and Nutanix Xi Cloud Services for GCP will allow for easy “lift-and-shift” operations to quickly move workloads from on-prem servers to the public cloud when needed.

“With this strategic alliance with Nutanix, Google is addressing one of the most pressing technology challenges faced by enterprises – the ability to manage hybrid cloud applications without sacrificing security or scalability,” said Nan Boden, Google Cloud’s head of global technology partners. “Partners like Nutanix are essential for us to build a thriving ecosystem and help enterprises innovate faster.”

This partnership should bolster GCP by giving it something other than a “me too” hybrid cloud solution to go against the AWS/VMware partnership and Microsoft’s Azure Stack – as well as giving it a more solid presence on the edge.

https://www.datacenterknowledge.com/archives/2017/07/06/goog…

This is the Google/Nutanix partnership. Notice how Google needs it to sell into the enterprise market. Nutanix does not necessarily need it.

I fail to see how Google believes they can outsell into markets that Nutanix and VMWare already dominate, so I wager this rumor is full of phooeeeyy in regard to any relevance to material impact on Nutanix’s business.

Btw, the site made me copy all or nothing so all (or almost all it is).

Tinker

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Wow. Now down 11% (I added another 1/8 at the -7% mark). I may have to take a chance and make this a full half position…

http://discussion.fool.com/34009818.aspx

The news that brought the stock down is supposedly Google on premise. Well, as it turns out Google announced and has had such product out since at least July. I link to and discuss it in the above link.

The product is niche, and in. I manner (as you may have expected yourselves from experience) affects what Nutanix and Google are doing in their partnership. The only data centers who would use this Google on premise product are those w limited use cases that mostly involve limiting oneself primarily to using Google AI tools in a hybrid environment.

Now Google might make available some appliances to help such smaller data centers who might like this use case.

The number of Nutanix customers who would opt for this service in lieu of Nutanix or VMWare, etc is the same number of field goals that a Minnesota Viking kicker can make in any game where just making one field goal will win the game (hint - very low number sadly).

Tinker

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I can’t verify the credibility of this news source, but the logic seems to confirm what feels intuitive:
https://www.crn.com/news/cloud/google-won-t-compete-with-par…

“Google, for its part, said that it won’t be competing with its partners in the private cloud business, such as Nutanix, whose stock declined nearly 12 percent on Monday to $46.43 on the news. “We value our partnerships highly and can also confirm that we are not competing with our partners in this area,” the spokesperson told CRN.”

At this point its unclear whether I’m biased on NTNX (probably yes, so take what I say with a grain of salt), but seems like a backup the truck moment. Not sure there is a better risk/reward out there right now. Currently a 20%+ allocation for me, with a large chunk of that in my trading portion of my portfolio (making it even more significant).

The company now has a current EV/S of 6.6 and a 12 month forward EV/S of 4.9. And it is growing at 50-60% with 80% gross margins. Oh, and it added 1,000 new customers just last quarter. Not sure what I’m missing, but I’m happy for the opportunity to add more…

As always, I’ve been wrong many many times, so please do your own due diligence.

Stephen

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I use enterprise value to sales. Enterprise value is now around $7.4 billion leaving the ration for this years expected $1.35 billion at 5.48, and if as Bert thinks that Nutanix, assuming that Xi is successful, can grow at 50% for at least a few more years, then you get $2.1 billion and $3 billion, with ratios of 3.52, and 2.46. If NTNX does grow like this it should at least get the multiple of say VMWare, say 9x. Removing the effects of dilution, which won’t be that significant, 5-15%, you get 3.65x return 2 years out.

Of course it depends on the market continuing to perceive Nutanix as creating real value and not just forever buying customers. We have seen, however, as long as free cash flow is in the midsts and growing, that said perception becomes easy to come by, in fact easier to come by than if the company were only slightly profitable.

To put it into perspective, I figure Zs and MDB are nearly identically valued at this time, each around 16x into the next year and 10-11.5 into the following year. Here we have Nutanix growing just as fast, much closer to real profitability (at least cash flow wise) and in a world wide duopoly.

Valuation aside, as to the Google issue. What I linked to here, for the NPI post on the topic, what Google is offering has already been known since at least early July, and is a niche product for a particular use case for data centers that primarily will probably be doing only machine learning work, in either a smaller data center, or a niche part of a larger data center, that has no need to do much more than this.

These customers that would take advantage of this are (1) not likely to use Nutanix nor VMWare solutions as their needs are not that complex, nor large enough to be worthwhile for these companies, and (2) they are not necessarily sophisticated data center users that will need hand holding (thus the Google devices).

So no, the customers Google will attract by this product are not likely to be qualified customers for Nutanix.

So yeah, if you believe in the fundamentals of Nutanix, and the market of course perceives the same value creation (as it always has, plus or minus depending on the mood of the day) then yes, this very well may be a back up the truck moment. It is one of my three holdings now, smallest because I used my Pivotal proceeds plus some more cash to fill up the truck with.

That is for me. Scary times of course, but one has to wonder, how much lower can the stock sustainably go? The key term is “sustainably”. We have all seen stocks just crash, but the risk is sustainably crash beyond our reasonable time period. My personal opinion is there is not a whole lot lower the stock can sustainably fall to. Thus why I stated it was a good day in the market for me, even as I fretted like everyone else. Emotions and analytics, a killer combination in love, war, and investing. Not like my dog who is just full of emotions and desire. Nah, I will stick to being human.

Tinker

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Not sure what I’m missing, but I’m happy for the opportunity to add more…

You’re missing the fact that this space will become ultra-competitive with the addition in the near-future of incredibly well-financed competitors.

Maybe NTNX wins but maybe they don’t. What odds do you put on them becoming a zero due to being out-competed like many software firms over the years?

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You’re missing the fact that this space will become ultra-competitive with the addition in the near-future of incredibly well-financed competitors.

Maybe NTNX wins but maybe they don’t. What odds do you put on them becoming a zero due to being out-competed like many software firms over the years?

That is exactly what was stated two years ago as EMC said they were going to take Nutanix down and dominate this market, HP bought a NTNX direct competitor so they too, far better financed, would take down Nutanix, Cisco bought a competitors, far better financed, so they too would take down Nutanix…

As we stand today the market is still a duopoly with VMWare (much better financed, with a far larger installed base of virtualization software) and Nutanix holding in sum 80% of the market, with Cisco and HP at maybe 5%, each, at most.

IS VMWare the market leader? Is Nutanix? There is argument there, in the end the conclusion is that if you want an operating system for your data center you have two options: Nutanix or VMWare, or go with a niche player (third option). Year to date both VMWare and Nutanix have further grown their marketshare.

No, better financed competition is not going to take the market. Who? Cisco/ (no), HPE (no), VMWare (no), oh you mean Google? Err, no. Who do you mean then, and how?

Tinker

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