NTNX upgrade

Goldman adds to conviction list,$43 price target, says hardware revenue decision is misunderstood…

Nutanix’s decision to eliminate hardware revenue wasn’t well received by some Wall Street analysts, but Hall said in a Tuesday note that he feels otherwise. The decision is misunderstood by many investors, the analyst said.

Some investors think Nutanix’s decision marks a major shift in its sales model, but that isn’t the case from a customer point of view, Hall said. Nutanix clients will find the purchasing process “essentially unchanged,” as they will continue to buy an integrated appliance, he said.

From Nutanix’s point of view, software represents 80 percent of gross profits and accounts for just 52 percent of total revenue, while hardware accounts for “exactly zero gross profit” dollars, the analyst said. While hardware will likely still represent 5 percent of sales in fiscal 2020, management is working as quickly as possible to move that number to zero, Hall said.

As the company transitions, it could see a blended gross margin rate above 80 percent, outpacing the Street’s estimate of 75 percent, according to Goldman.

Nutanix is expected to “clarify” its transition at a March 12 analyst day presentation, Hall said.

“To some extent, we would expect market forecasts to increase to match our modeling as a result.”

Price up nice today in an iffy market. If the market remains choppy for a few weeks anything can happen, so set an alert in case we find a double bottom around $29 just because the market is stupid.