NTNX thoughts

Here’s what I like:

  1. Full 1 year SW and Support Billings growth and acceleration: 54% growth and 4th quarter in a row of growth acceleration!! Acceleration will continue to 61% growth at midpoint of guidance but the y/y growth will slow from 66% to 54% (but this is the guidance).

  2. Gross margins jumped up 68.4% to 77.7% sequentially! Very nice. It’s the elimination of the pass through hardware.

  3. Customer growth still very strong at 51% y/y increase in total customer count; 27% y/y increase in G2K customer count with 35.5% of G2K penetrated.

Additional thoughts:

For assessing NTNX’s financials and growth, the SW + Support Billings should be used. This is really the best metric, IMO, for tracking the business traction because it excludes the HW component and counts the deferred revenue. Looking at this, one will notice that the business is accelerating:

Q1 18: 33%
Q2 18: 37%
Q3 18: 45%
Q4 18: 54%
Q1 19: 61% (midpoint of guidance)

Growth has not been slowing. It’s been the opposite!

IF you look at slide 6 of the new Q4 2018 investor presentation, you will see that the passthrough HW will continue to negatively affect y/y total billings growth rate for next 3 quarters because the y/y comparisons will be apples (HW included) to oranges (HW not included) through then. If analysts and investors are looking at this (instead of SW + Support Billings) for assessing growth then they will be underestimating NTNX’s true business growth rate. Is the market factoring this in? I don’t know, but the after hours stock price reaction after the earnings release suggests that maybe people are blind to the true growth.

NTNX is my largest holding still, and I added a trading position in the premarket. I’m not sure that the market will catch on. We will see…