Found this little guy tucked away from the headline stuff.
“51% of our billings in our first quarter were derived from subscriptions, up from 31% in the same quarter last year, and our subscription revenue grew 104% year-over-year. As we look ahead, we expect to continue this shift towards subscription, driving a cloud-like, pay-as-you-grow business model.”
Dude 51% of Billings(comes to $196M) and growing revenues from that at 104%! SEC form reveals that subscription revenues this quarter were $127M or 41% of reported revenue. Nope not from a small base. That is the definition of killing it. Deferred revenue grew 77% Yoy! Deferred revenue grew 71% last quarter.
NTNX already has so much future growth already in the balance sheet.
We have some companies with amazing growth in SaaS but I think those are the most impressive numbers of them all. And unlike other companies (PVTL) the legacy business is aggressively being sidelined not whithering on the vine.
Exciting. When they round the corner on this hardware elimination that will be awesome.
I feel that the decline of HW revenue has been a solid drag on top line growth over last few quarters. Now it is small enough to not be visible in a quarter or two.
So - overall top line should accelerate in a quarter or two from now. Nutanix is reached a moment that we saw for Twilio - top line growth will start accelerating but street couldn’t see untill one or two quarters later.
It’s time to back up the truck on this one. Although I still want to see market appreciation before doubling my stake here.
However, if I read it correctly in the cc, the high growth in subscription revenue mostly comes from the migration of old customers to the new SaaS-type model. So it’s not like they are doubling new services sold to customers, they are basically putting already made revenue from one bucket into another - at least for now it seems to me.
That is not to say that their move to more SaaS revenue isn’t a very positive development for shareholders. That looks very promising. However, I wouldn’t describe this situation as a „hidden growth“ story. At least not yet.
Apart from the hidden growth story we already have with hardware sales. So no hidden growth story within the hidden growth story is what I meant (ie no growth inception ^^).
We stated that we would begin a phased-in approach that will transition our non-portable software sales to recurring subscription licensing model. We further stated that this would replace today’s licensing structure, which is based on the life of device giving customers greater choice and flexibility around their software procurement strategies and provide portability of the software.
We also discussed that we would implement this change beginning in Q2 2019 and ramping through the second half of fiscal year. I’m pleased to announce that we had a bit of an early start with this transition and in Q1, we transacted over 110 customers on this new licensing methodology. These transactions included enterprise, commercial and SMB customers, new and existing customers, as well as a good mix of customers from all geographies.
I read that too and yes they are working to move current customers to the subscription licensing. They moved 110 customers. They ADDED 3,670 new customers. If I’m reading that correctly, transitioning customers more than likely are a small part of the increase.
And the
“non-portable software sales”
also moderately increased… not decreased like HW sales…
So, I agree that they are moving existing customers to subscription model… but I believe thats happening at a very slow pace as Darth pointed out…
And it makes sense… if I am a customer who has a life time license, I am not going to start subsciption just because its cool… However, Nutanix can force me to get to subcsription if I am asking for additional module or feature… etc. So, it seems thats what they did with 110 customers… so this would be a small piece of subscription story, not major piece.
The real challenge comes from new customer… if your majority of revenue today is life time license and say you are charging $1000 for license… and now you want to move that to subscription base at say $200 per year… for first year of such transition, your revenue instead of being $1000 becomes $200… and this goes on for five years… you take major top line hit… ofcourse you get better outcome in sixth year onwards…
see SPLK history to understand this better…
The good news in case of NTNX is that their subscription revenue is already major piece of the component and they are not (at-least yet, per this quarter) reducing “non-portable” (which I interpret as regular / life time) license revenue.
This becomes very interesting… like they can have their cake and eat it too…
How can they do that? Simply by balancing this right… instead of asking all new customers to go subscription route, they should have managed certain products or vertical segments to keep on “non-portable” while majority of new customers go to subscription…
This is my guess… would try and find clarity on how this is working. But if this is true, NTNX management have found a better way of managing this compared to SPLK and few others who went through more painful transition to subscription model.