Nutanix Deepish Dive -- Bought More Recently

Investment Analysis Clubs Saul’s Investing Discussions
1

Hey everyone. I’m no expert and I have much to learn, but I want to share my thoughts on NTNX. It helps me to write my thoughts out and I hope this post adds value to our discussions on NTNX or inspires others to share their thoughts.

Warning… this will contain a bit of rambling and some spelling mistakes. But we’re on a free public forum, so I’m okay with that.

What Does Nutanix Actually do?

Nutanix’s mission is to “Make Enterprise Computing Invisible”

They started with Making Infrastructure invisible, moved to making data centers invisible, and are now focused on making clouds invisible. The key for them is making these transitions and enterprise computing as simple and seamless as possible “1-Click Private Cloud” for private cloud (on premises data centers) computing and “1-Click Multi-Cloud” now for public cloud computing (what we all know as the cloud…AWS, Google, AZURE, etc).

Our Team: When we invest in companies, their team becomes our team. We only work with great teams. Investing in founder-led companies is about investing in leaders and teams we believe in. By following their social media interactions we can gain valuable insights about business and maybe more importantly, insights into the people we are investing in.

Founder, CEO & Chairman:
Dheeraj Pandey (@dheeraj): https://twitter.com/dheeraj

Chief Financial Officer:
Duston Williams: https://www.linkedin.com/in/duston-williams-6b241734

Chief Information Officer:
Wendy Pfeiffer: https://twitter.com/WendyMPfeiffer

Glass Door Rankings:
4.3 Stars
84% Recommend to a friend
97% Approve of CEO

3 Important Metrics to Watch:
Software and Support Billings Growth: +54% Year over Year (YoY)
Net Promoter Score (NPS) = 90 (4 year Avg)
Non-GAAP Gross Margin: 78%
NPS is a customer satisfaction benchmark measuring how likely your customers are to recommend you to others. I’ve never seen an NPS of 90 before. Here’s some background on what the NPS actually means and how it’s measured. https://blog.hubspot.com/service/what-is-nps

Most Recent Earnings: Q4’FY2018 (August 30th, 2018)
Full Year 2018:
$1.2B Software and Support Billings: +54% Year over Year (YoY)
$898M Software and Support Revenue: +47% YoY
$93M Operating Cash Flow +570% YoY
$30M Free Cash Flow +$67M YoY – from -$37M to + $30M…wow!

Q4:
$359M Software and Support Billings: +66% YoY
$268M Sotware and Support Revenue +49% YoY
78% Non-GAAP Gross Margin +15% YoY

Customers:
10,619 total: +1,000 Quarter over Quarter (QoQ) ~10% QoQ growth
710 Global 2000
472 w/Lifetime Bookings of $1-3M
90 w/Lifetime Bookings of $3-5M
83 with more than $5M Lifetime Bookings
70% of Bookings from Repeat Customers
44% of Bookings from International Customers

Balance Sheet:
$934M in Cash and Short-term investments

Liquidity:
$93M Operating Cash Flow in FY

NEXT Keynote, June 2018:
https://www.youtube.com/watch?v=a9ActUHgWts

Products:
Bedrock of strategy

Acropolis - Web Scale (left brain)
8,800 global customers, 7 years of innovation, many 100+ node deployments
“Show me another vendor with 100 customers with 100+ node deployments. Very very rare.

Prism - Consumer Grade Design (right brain)
Most of investments in Prism going forward will be in AI and Machine Learning

“Real core capabilities of Prism and Acropolis probably best served by looking at quality of product”

Number of nodes shipped in 2016 = 37,000+ nodes
Key Metric: Number of bugs found as % node shipped. World class companies do 2-3%. Two years ago we had just broken that number. Now currently at .9%.

“Goal with Acropolis and Prism is to be the most advanced enterprise cloud OS on the planet. We will keep it this way for the next 10 years.”

Overtime, continue to add new capabilities while keeping same seamless 1-click interface.

“If you come to San Jose Airport, on your way to long-term parking, you’ll pass our office”

“Single OS Any Workload”

Customer Spotlight - started in days in 2015, and now using Nutanix for workloads like Splunk, Hadoop, Cloudera, with Splunk we handle over $1B events daily. With Nutanix, we’re just able to run it.” -delight from customers, reports that used to take hours, run in milliseconds now”

“Started with 4 nodes from Nutanix, now have 283 nodes, started w/50TB of data, now have 3.8 Petabytes of data”.

What is the “value” we’ve achieved? Simplification, all easier, cheaper and able to scale with the business. “Improved productivity 600%. 40% Total cost of ownership reduction $750k each month by saving 1 hour of down time for maintenance, upgrades, etc.”

Customer Spotlight: International Speedway Corporation Shifts the Fan Experience into High Gear:

https://www.youtube.com/watch?v=9wJUWfj502A&t=72s

Example of how ISC uses Nutanix…if it can be used for NASCAR, it’s simple enough for me.
David Luke, Director IT Engineering:
13 Race Tracks throughout country and around 700k total seats. Fans expect seamless experience from parking lot to buying merchandise, concessions, and finding seats. It is everything, coming in, scanning phones, and finding seats.

“One of biggest challenges is scale. 105k folks in grand stands and we want them connected, engaged. When it doesn’t work, fans notice, when it does work, they can focus on the event.”

“Prior to Nutanix, we were required to upgrade on a regular basis, there was always problems. Nutanix brings simplicity” - supports our leader board and is heavily integrated in core it infrastructure for all of our events.”

“Shifting to Nutanix Oracle nightly processes ran 50-90% faster.” More examples of uses

9.12.18 Investor Presentation: https://event.webcasts.com/viewer/event.jsp?ei=1207998&t…

Duston Williams, CFO & Greg Smith, VP of Product Marketing:

Legacy IT infrastructure puts a burden on IT teams (roughly 80% of time spent just keeping lights on)
Teams are managing multiple cloud environments
Nutanix provides hyper converged clouds which allows companies to run company on public or private clouds with harmonized workflows and ability to move data across cloud environments.
Nutanix is “a software company” “providing enterprise cloud OS” - provides all resources you need to run applications on the cloud.
Bottom layer is the hardware
We are software so we allow companies to deploy applications to build on cloud in many environments
Not limited to specific industry, but spread across all industries of economy
Customer account exceeded 10k (66 of global 100, 710 of global 2000)
1000 customers added in Q4
Largest corps have benefited from new architecture that’s replacing old
Support with great teams and service NPS over 90 for more than 4 years

Questions
It spending environment – where is that strength coming from and how durable is it? Is 2018 temporary cyclical blip or will this solid spending environment continue into 2019?

Answer: Short answer yest. We’ve seen investment in over all IT stay about the same, but we’ve seen a difference in where the investment dollars are placed. Instead of just spending cloud dollars on Amazon, they’re thinking about where’s the optimal place to spend those cloud dollars. They want favorable economics for their dollars spent and that’s what Nutanix offers
$75B + TAM - every tech that goes into data center can be optimized. Public cloud is a tail wind for Nutanix. The more people that see public cloud and experience it, helps Nutanix “we can deliver same benefits and effects of public cloud, except more secure in data center”.

Question
What are one or two key differentiators between NTNX and Dell VMWare?

Answer:
Point back to public cloud and why it’s so popular -
We offer single software interface, single API, single offer to simplify across all operations. Nutanix has demonstrated success so far we bring ability to build data centers in a matter of minutes without expertise, customers have freedom of choice to pick vendor they want. Nutanix offers freedom of choice and elegance and simplicity and building operating system of the future vs competitors

Question:
Use case for Nutanix?

Answer:
Traditional use cases - what traditional workflows can be re-platformed? Traditional workload requires 100s of applications. Today we can go to customers and offer to re-platform data center in a data center we hyper converge clouds, teams, resources in data center. Next step is about converging clouds.

Question:
Status on transition to software model?

Answer: FY18 was focused on shedding hardware. No longer recognize hardware (gm now 78%), that went pretty much as planned. Next piece of transition is decoupling base operating system from hardware and starting to sell it on a subscription term basis. That will be a several quarter (into FY20), but we will commit to transitioning to subscription business w/two pieces decoupling and selling on prem and as xi, beam, frame, new offerings come in, we will have a more cloud based - rout-able system. Over a few year period vast majority of business will be subscription.

In 3-5 years no reason why most of business won’t be subscription. Some on prem, some in the cloud. Will give 12 month outlook on next earnings call.

Question:
Distortions to financial statements – what directional shifts should we expect?

Answer:
Won’t see too much change in composition of business. Support deals today are roughly 3 year average. That will remain. Where you will see difference is in cloud subscription. We’re starting with $1.2B software/support revenue base to begin with. Won’t materially alter billings/revenue until XI, Beam, etc come in

Question:
Growth margin trade off. Intent to step up investment in 2019, elaborate on where focus will be

Answer:
Operating within rule of 40 score (40% or greater investment) all spending and all growth will be for the most part self-funded (free cash flow neutral) investing cash back into the business. Dollars will go into new product offerings and acquisitions. Frame ~25million.

Properly funding the technology we have acquired.

As long as productivity of salesforce increases and repeat spend, and new customer growth continues to spend. The last thing we should do is stop spending and let someone else take market share. Until market matures, when we will have a large enough revenue base where we can start growing income, etc.

Question:
With regard to Nutanix today, I get the sense it’s mostly on prem. How will customers run Nutanix in the future?

Answer:
2 ways. 1 XI (our own public cloud service) began rolling out last few weeks, with broader availability later this year. Starts with XI transferring on prem to public

  1. Calm and Beam, both came to us through acquisition. Calm - every Nutanix customer has a license which allows them to build blue prints for application in the cloud, then IT operator can chose cloud which they want to deploy.
    Beam is a SaaS service (already manages $1B of cloud spend) provides cross cloud analysis of how companies are using cloud spend today. Looks across AWS, GCP, Azure, sees what’s spent for what, and how much.

Question:
Talk more about XI does it only augment on-prem and would you ever start with XI?

Answer:
Today, it’s meant to extend what customers are doing in their own data center. Today we want them to start on prem, build environment, then expand to public cloud with XI. Technologically, we do have ability for new customers to start with XI, but that’s not our strategy today. Xi can be delivered on Nutanix and third party data centers. Decouples cloud environment from data center.

Xi is an infrastructure as a service adding platform services as well.

Question:
What layers of data center are you re-platforming?

Answer:
We are enabling customers to re-plaftorm applications to Nutanix and replace individual storage silos (Netapp, EMC, Hitachi, etc) also replaced servers (provides storage and compute) we have native virtualization. We replace need to hyper-visors. We make virtualization invisible. Then we provide calm to manage applications on top of it.

45 Likes
2

One note, I only wrote about the products talked about in that speech. Nutanix now offers Beam, Calm, and will soon fully launch XI which to my understanding is another big shift in their strategy/offerings.

1 Like
3

Question:
Use case for Nutanix?

Answer:
Traditional use cases - what traditional workflows can be re-platformed? Traditional workload requires 100s of applications. Today we can go to customers and offer to re-platform data center in a data center we hyper converge clouds, teams, resources in data center. Next step is about converging clouds.

I am still on the fence about NTNX. The numbers are there, but I don’t get their pitch at all. Read the above. Would that make you excited about buying their products? To 're-platform your workflows and re-platform your data center in a data center?

1 Like
4

In short, as an investor (and I think this is part of the problem with the stock right now), no…because I don’t understand that stuff at all.

But from an IT or DevOps perspective inside the companies who rely on these systems to run core functions of their businesses…well the numbers say a screaming YES!

So, our decision is, trust that the stock will reflect the product/business excellence, or throw it in the “too confusing” pile and move on?

For me, because of how clearly management understands their strategy and their ability to speak to it at these tech/investor conferences and the business results, I’m giving them a chance.

4 Likes
5

For me, because of how clearly management understands their strategy and their ability to speak to it at these tech/investor conferences and the business results, I’m giving them a chance.

Agree, Aleeb, and as Saul has pointed out before, you may not be able to understand the tech side of the business (I can honestly say I don’t fully understand the tech of a lot of these businesses), but you can still invest on the numbers that they put out (business performance).

2 Likes
6

I work in IT. I do understand what they’re providing technically. I just don’t understand their pitch.
Take Mulesoft, a middleware provider that was in Saul’s holding for a while as a counterexample - they pitch themselves as doing your “dirty work” for you. They’ll connect your enterprise software together and save you a bunch of heads in the IT department. Great. That’s a pitch that can sell their services.

Nutanix on the other hand - no. What they described is not really a use case for a business. De-platforming is not “usage”. At best it might be a technical solution to a use case. The answer to the question about why they should be better than VMWare was very muddled as well.

I am still holding a position but I am wondering whether this is a INFN situation we had here a couple years ago…

3 Likes
7

I work in IT. I do understand what they’re providing technically. I just don’t understand their pitch.

stenlis

I think what makes Nutanix difficult for non-IT people to understand would be that I think Nutanix, along with other vendors in the space use their marketing pitch to obscure what they would technically be doing.

I am also one that does like to have a decent understanding of what a company would technically be doing because financial performance does not show all. Sometimes, if a person has a understanding of a company, they can see which competitive threats might be a true danger and also which other threats might not really affect the company.

Almost no CEO will acknowledge a true threat to a company…most CEOs will always frame things in a way in which a company would always be doing well and can meet any challenge…also known as “Talking their book”. I don’t think a person has to know Nutanix well enough to use their products but I do think a investor should understand the company well enough to determine where the risks lie and many of the true competitive threats to the company. Why is that? Well, it sort of helps to know what’s going on when the inevitable short seller blows through with accusations. I want to know enough to be able to determine how much smoke (if any) the short seller/critic might be blowing, as well as how much smoke (if any) the CEO might blow in response to questions asked about the company.

I do not want to be solely ruled by bias. I have seen investors in a company, so biased toward a company that they dismiss everything a short seller or critic says but in the end I have seen short sellers/critics be very right sometimes. I don’t want to dismiss a critic simply because they would be short but I want to dismiss a short seller/critic because I have a understanding of the company and can “see” the probabilities of a short seller/critic of a company being correct as being very low.

That’s why I want to understand Nutanix. If someone says, “Nutanix will never be able to compete against VMWare”, (just as a fictional example) then I don’t just want to dismiss such statements out of hand but want to understand the reasons why that may or may not be true.

Starrob

5 Likes
8

Hi Stenlis

Not talking about Nutanix the stock, but for businesses with private datacenters (ie, big businesses), what Nutanix offer is (IMO) compelling. I’d go even further, and say “inevitable”.

As I see it, they’re offering to “AWSify my private datacenter”. Instead of manually provisioning servers, allocating applications to servers etc., I can treat my private datacenter as a ‘cloud’.

For non-IT people who aren’t super-clear on what the ‘cloud’ actually is, it means treating a whole bunch of individual servers as one gigantic server that gets bigger and smaller transparently.

So doing that to your private datacenter is inevitable. The old way of doing things is not optimal.

Better than VMWare is more of a religious argument. The big trend is the ‘cloudification’ of private datacenters, and following that, the merging of private and public clouds. Your private cloud not big enough? Start up some more instances of your app on AWS.

IMO, any CTO who doesn’t have this at least on their radar is dropping the ball. Cost savings should be large, simply because the software is now doing what (expensive) people used to do.

cheers
Greg

6 Likes
9

Nutanix on the other hand - no. What they described is not really a use case for a business. De-platforming is not “usage”. At best it might be a technical solution to a use case. The answer to the question about why they should be better than VMWare was very muddled as well.

Hi Stenlis,
I figure that I don’t have to understand it what they do… as long as their customers do. Consider the following:

Customers were 10,600, adding 1000 new customers in the quarter. Note that that’s not up 1000 in the year, that’s in the quarter… Customers! And Subscription billings were up 66%.

That certainly sounds like their customers understand what they are doing and want some of it. But that’s just the way I think about it.

best,

Saul

22 Likes
10

There is nothing more valuable to investing than a little naivety. It is not the technology, the business process, etc. that makes for great companies, great investments, it is the results. Windows still sucks to this day (I have Windows 10 on a brand new PC for VR, and a 2014 MacBook). The shortcomings of Windows 10 becomes so apparent when you run the same software on both even though this PC is a super computer and I am working otherwise on a 13" screen on a 2014 laptop.

I had to switch back to the MacBook and reserve the windows computer for back up and VR.

Back in the day when DOS (that preceded Windows) was taking off, IBM finally figured out their mistake and launched their own competing operating system. What was it, OS/2? I believe so. In every manner possible except one OS/2 was superior. IBM was also able to put it on all their PCs for free, as they built OS/2. And at the time IBM dominated in PC sales (it was almost all for business use back then, even in 1988 the PC was still a relatively new and immature device, and we are talking earlier than that).

If you were an industry insider, you know all the technical details, your opinion is that IBM will crush Microsoft. I have no doubt that was the opinion. However, if you know just enough about what they do, and follow the money, and understand the structural competitive advantage (ummm, applications only run on Windows) you know where to invest.

Ignorance is bliss when it comes to investing (at least partial ignorance). Figuring out time to sell however works much better as you learn more depth of the product and company (but that is another story, and you will learn more details naturally anyways the longer you hold an investment - not to mention the numbers will change).

Here is to ignorance! It is a great tool in the quiver of the successful investor.

Tinker

13 Likes
11

Re:
…Not talking about Nutanix the stock, but for businesses with private datacenters (ie, big businesses), what Nutanix offer is (IMO) compelling. I’d go even further, and say “inevitable”.

…IMO, any CTO who doesn’t have this at least on their radar is dropping the ball. Cost savings should be large, simply because the software is now doing what (expensive) people used to do.

Greg,

I believe your entire argument is spot on; Hyperconverged systems are inevitable for most companies to save money and will be common in the future. I work for a large company (fortune 100) and had a conversation with the CIO last Tuesday. I asked him if we have plan to pursue this architecture and his answer was yes, 2020. I follow-up with, why 2020? His answer was, we would like the company that approached us to be in a better financial position, i.e. stronger balance sheet . By this time, I was sure he was taking about NTNX and yes, he confirmed it was!

Therefore, yes, most larger companies, the ones that would spend the big bucks are just waiting for the right time to jump in. If you recall GE did not pursue ZScaler (ZS) the first time round. Only when ZS got more financially stable, GE asked them to come in.

Our CIO believes in this architecture though, he suggested NTNX will probably get a separate or new part of the business to implement their HCI product. If that is a success, guess what happens in 2020?

31 Likes
12

Hi Stenlis,
I figure that I don’t have to understand it what they do… as long as their customers do.

Saul

That presupposes that the customers understand what they would be buying and understand all of their options. I believe that system works better when the customers would be small nimble companies that will try things and if the thing fails will quickly shift to the best solution.

With customers that would be big enterprises that might not necessarily be the case. Big Enterprises would often be like battleships, often taking a long time to change direction. Many times, when big companies make a decision, they might remain invested in whichever decision that they make, even despite poor results (when poor results occur) because in some ways enterprises get “locked in” to certain decisions/directions that they take. Usually when companies or people invest in a certain way of doing things, they also choose to remain ignorant of better solutions through bias, so I don’t often view the decisions by large enterprises to buy certain products or services to be a totally perfect indicator of how good a product might be.

Also, “Group Think” applies to companies as well as individuals. Sometimes, even major companies pursue certain solutions in the market simply because others would be pursuing those solutions. Sometimes, a certain solution gets chosen simply because it’s the latest fad among the sheeple https://www.urbandictionary.com/define.php?term=Sheeple .

When a disruptive company puts out a new solution, enterprises might not necessarily choose a disruptive companies solution for many years because they have already invested in a “incumbent” solution and do not want to switch. So, disruptive companies might have better solutions than the solutions anointed by the incumbent “group think” but the disruptive solution might not be known by it’s fundamental results for quite some time because big companies simply don’t want to try something new, even if the large companies might feel the disruptive solution might be “better”.

I have seen some people discount possible disruptive factors because they don’t see “evidence” of disruption. Well, people that choose to remain “ignorant” of possible disruptive factors often get blind-sided when results of their favorite company falls off. Sometimes, a fall of results would be because of something temporary and other times it would be because of a true competitive threat that many investors initially chose to ignore that would be silently eating away at the company, while at the same time, many people treat the “incumbent” CEO as God when the CEO makes proclamations from the Mount that pooh-pooh’s any and all competitive threats away. Since I have the time to look at my investments and the competitive environment, I prefer to learn more about the companies that I invest in rather than knowing less about them. Some people say, “You can’t know everything” to which I say, “While one can’t know everything, that would not be a excuse to not make attempts to learn more”

Some people say, “Always follow the crowd”. To which I say, “The crowd would not always be right”. Sometimes, the crowd will choose a pied piper that leads them over the cliff through slick marketing. This not only happens with individuals but sometimes with companies, which would be why I sometimes become suspicious of companies that use slick marketing to cover up technical details of what the company actually does. I don’t always become suspicious because sometimes marketing makes the technical details more understandable to the people being sold to but let’s just say some companies produce more smoke with their marketing than others and if I see too much smoke, it sometimes makes me more suspicious that there’s a fire.

I am not saying Nutanix would be in that position but it does make me want to learn more about Nutanix so I have a better idea of determining who may or may not be blowing smoke and whether or not that smoke indicates a raging fire. Some investors simply buy into a idea and choose to turn off their smoke detectors. I choose to keep my smoke detectors active, even through false alarms, so that I have advanced warning of when I might want to get out of a building.

Starrob

There is nothing more valuable to investing than a little naivety. It is not the technology, the business process, etc. that makes for great companies, great investments, it is the results. Windows still sucks to this day (I have Windows 10 on a brand new PC for VR, and a 2014 MacBook). The shortcomings of Windows 10 becomes so apparent when you run the same software on both even though this PC is a super computer and I am working otherwise on a 13" screen on a 2014 laptop.

XMFBreakerTinker

I have seen “naivety” or what I call ignorance cut both ways. I prefer to be less ignorant than more ignorant and view investing as a constant learning process to continually reduce ignorance. I have invested in companies before that I might not have originally invested in (if I had known more) or remained invested in companies through ignorance that kept me in those companies that did very well, so ignorance has been a positive blessing, sometimes.

I have also gotten destroyed in some investments through ignorance. I have also seen people invest in a company, even though being ignorant about various things about that company, then become positively biased toward that company in which bias tends to make people want to remain ignorant about a companies true competitive position and I have seen such people dismiss any and all criticism about a favored company out of hand and later watch such investors get burned in a conflagration, all because of ignorance.

So, yes ignorance cuts both ways.

My attitude towards things would be that whenever I invest, I realize that I might be investing in ignorance but I do not use ignorance as a excuse not to learn more about a company that I invest in.

Sometimes, when I learn more about a company, I do find things I don’t like and if I find enough things that I don’t like then I will sell, no matter if the company might be shooting to the moon and all other investors would be shouting praises out of the same hymn book. Often enough, I have gotten out of bad investing situations before major collapses by continuing to follow the philosophy of “learning more”. Attempting to limit my own biases and “learning more” got me out of many Global Gains Chinese Small Cap selections before they collapsed. I did not blindly believe and ignore the heavy smoke blowing out of the mouths of CEOs of those Chinese smallcaps that indicated a major fire. The strategy of learning more has also kept me out of many companies, as often I won’t invest in many TMF reccs for many months or even up to year(s) as I study them…I have seen many of those decisions to stay out of companies to ultimately be “correct” enough to make me continue to want to use the strategy of “knowing more”

I will also look back on my buys and sells to see if my decision making process proves more correct over time or not. If I find that my decision making process produces worse results than I change my decision making process on when to buy and when to sell. I value the rules/process that I built up over years, rather than remaining in blind ignorance about a company while simply becoming enchanted with stock results or the sales momentum that a company has.

Starrob

6 Likes
13

the ‘cloud’ actually is, it means treating a whole bunch of individual servers as one gigantic server

We used to call that a mainframe . . .

2 Likes
14

<<<I am not saying Nutanix would be in that position but it does make me want to learn more about Nutanix so I have a better idea of determining who may or may not be blowing smoke and whether or not that smoke indicates a raging fire. Some investors simply buy into a idea and choose to turn off their smoke detectors. I choose to keep my smoke detectors active, even through false alarms, so that I have advanced warning of when I might want to get out of a building.>>>

I do not know, now more than 10,000 customers, customer growth actually accelerated, software billings growth nearly unprecedented for a company at these revenue levels, Nutanix is the market leader (fear stated otherwise has been proven to be false), a short attack certainly was tried with the false Google story, followed immediately by a huge brokerage downgrade calling Nutanix a second source to VMWare (when we know Nutanix is the market leader), and all coinciding with a secondary.

I am not saying do not learn what the business does, but what I am saying is that more important is understanding the competitive advantages (the CAP), the SAM (serviable addresasble market), how can they grow that SAM, and how fast are they growing into their SAM, all in the context of business momentum in the real world relative to what the valuation and share price are doing.

Whether or not Nutanix has feature X and VMWare feature Y, in my mind may be interesting, but if it was that important you would see it in all the elements of the previous paragraph. All the underlying business model and product and marketing and sales, etc., in the end correlate with the results,and the results are all the things expressed two paragraphs ago.

So to analyze, analyze it for those things instead of trying to get too close and for example say (as was said of Teladoc from a HArvard MBA student in 2015 - “Teladoc despite its enormous market lead will lose this market because of its subscription business model.” REally, well that may sound smart except the real world results turned out to be otherwise in spades.

I remember many people saying similar things bout Qualcomm and missing out, they got too close to the market and the FUD about how CDMA was too expensive, to complex, in fact impossible. It hurt their returns in a big way.

Anyways, again, not saying not to look, but am saying, as Saul expresses so often, there are more important things to understand for successful investing than the nitty gritty stuff. It is great to look up, understand, and obviously I do as well, but that is not the most important stuff to be a successful investor, in fact I know it actually hurts as an investor.

What does Nutanix do? They provide software to better and more efficiently manage your date center using a technology called hyperconverged infrastructure that they pioneered and that is grown at 75% per year still, is expected to grow from 20-25% or so of all data center servers to more than 60% in the nest 4 years, and Nutanix and VMWare have a duopoly, there is no one else with even 1/7th the marketshare that Nutanix holds or that VMware holds, which includes Cisco and HPE (who have both acquired companies to try to become relevant in this market and have failed for the most part) so do not tell me some big players are going to enter the market and steal Nutanix and VMWare’s thunder.

Beyond this, Nutanix is moving to take HCI and now apply it to the cloud, as well as making virtual machines and containers indistinguishable to manage, as well as multiple other product extensions, relying on the late to market Xi platform.

Why do I need to know more details than this? I do of course, but it is not real useful to me as an investor other than I know that no cloud titan is going to take this market as being cloud agnostic is a corporate priority and that enterprises who use more tan 1 cloud spend far more money on their IT than those that do not. And that happens to be exactly where Nutanix plays.

Further, VMWare has NSX, but is reliant upon Pivotal for missing functionality, whereas Nutanix Flow is Nutanix’s answer to NSX, and you will not need to go through a complex decision making process to work with Nutanix to get the functionality, and so on…blah blah blah.

Let’s discuss it on NPI Starrob as we love cutting into that sort of detail. But in the end, I do not find it very helpful at all for making an investment decision. Perhaps it does become helpful down the road when making a sell decision (And yes, it absolutely does for selling).

Tinker

16 Likes
15

I am not saying do not learn what the business does, but what I am saying is that more important is understanding the competitive advantages (the CAP), the SAM (serviable addresasble market), how can they grow that SAM, and how fast are they growing into their SAM, all in the context of business momentum in the real world relative to what the valuation and share price are doing.

Let’s discuss it on NPI Starrob as we love cutting into that sort of detail. But in the end, I do not find it very helpful at all for making an investment decision. Perhaps it does become helpful down the road when making a sell decision (And yes, it absolutely does for selling).

Tinker

Which would be all well and good as that’s your investing decision making process. Others might have different investing decision making processes that work for them.

I tend to rather know more rather than know less. It works for me. You can do what works for you. We can agree to disagree.

Starrob

2 Likes
16

I am not saying Nutanix would be in that position but it does make me want to learn more about Nutanix so I have a better idea of determining who may or may not be blowing smoke and whether or not that smoke indicates a raging fire. Some investors simply buy into a idea and choose to turn off their smoke detectors. I choose to keep my smoke detectors active, even through false alarms, so that I have advanced warning of when I might want to get out of a building.

Starrob,

There is plenty of evidence to see without knowing exactly how Nutanix works. Consider first the business results and marketshare numbers. Nutanix is growing like a weed. Anyone who has been following NTNX’s billings growth and customer growth should be amazed. This growth is happening by customer companies that are giant organizations. Of the world’s largest 2000 companies, 710 use NTNX with 40 new ones added just last quarter.

Your post implied that perhaps sales might fall off a cliff. No way, not going to happen. How do I know that? A large part of their growth is from customers spending more than the year before. You can track this. The company reports on its land and expand: for the G2K customers, they on average spent 10x in total what they spent after the first 18 months of being a customer. Their Net Promoter Score is 90. This is really all that I need to know. Sales growing like crazy, customers flocking to them, and EXTREMELY satisfied customers who are not just happy but essentially all of them recommending NTNX to others. If this doesn’t convince someone that NTNX’s business is doing not just fine but amazingly well, isn’t looking at the right evidence.

In early 2018, NTNX was my highest conviction stock. It was also my largest position. I have not been selling but adding yet NTNT is now my 3rd largest position. The reason is that the stock has dropped while my shares in SQ and AYX have gone crazy…up. I have been adding slowing in the past weeks but I have tried to be disciplined to watch my allocation. I know I must add more given what I know. The gross margins are 77% and will be more like 80% when the HW pass-through revenues down to the long run percentage of sales. The EV/Sales is now down to 6.1 and the ration a year from now will be 4.5 (3.7 if you go by billings) at the current rate of growth. I believe the shares should be worth at least $90-100 right now. I don’t really understand why they aren’t there right now, but I’ll take it as an opportunity. In about 11 months the year over year revenue/billings comparison will be completely apples to apples. Maybe people won’t get how good of a value the shares are until then. I’m not sure, but I won’t be at all surprised if the shares will be trading over $100 in a year from now. Will it happen? I have no idea, but I wouldn’t be surprised at all.

Chris

38 Likes
17

Customers were 10,600, adding 1000 new customers in the quarter. Note that that’s not up 1000 in the year, that’s in the quarter… Customers! And Subscription billings were up 66%.

That certainly sounds like their customers understand what they are doing and want some of it. But that’s just the way I think about it.

best,

Saul

I would also add the net promoter score at 90 (tops?) which also indicates that their products not only work well, but that customers love them!

Matt

6 Likes
18

There is plenty of evidence to see without knowing exactly how Nutanix works. Consider first the business results and marketshare numbers. Nutanix is growing like a weed. Anyone who has been following NTNX’s billings growth and customer growth should be amazed. This growth is happening by customer companies that are giant organizations. Of the world’s largest 2000 companies, 710 use NTNX with 40 new ones added just last quarter.

GauchoChris

  1. Once again, there might be plenty of evidence that Nutanix works but I desire to understand more about how the company works…

  2. I never said that I don’t consider business results and marketshare numbers. In fact, they factor in heavily in how I research companies.

  3. Three, I never said that I needed to know how Nutanix products work down to the point of actually using them. I do want to understand how Nutanix’s products work to the level of how a customer might benefit from the products because while others might not gain insights by this, I personally do and it’s been helpful for my personal decision making process (as opposed to other people’s decision making processes). I don’t choose to invest in companies strictly by performance alone. I also have other considerations.

Just as a aside, I have seen fellow Fools invest strictly because of perceived performance alone before without understanding what they were investing in and it ended up horribly wrong.

One instance was the Chinese Smallcaps on Global Gains where people were only interested that they could get a 5 bagger in six months and ignored the heavy smoke of fraud allegations.

Another instance was First Marblehead, where as a newby investor I was told by fellow Fools to listen to the line coming out of the company that since FMD had something like decades of data on student defaults that they could, in so many words, “predict” what would happen in all market conditions and the company could adjust to “ALL” market conditions…I believed that yarn 100% until taking something like a 50% loss before cutting bait. At least I did not hold on and watch the company spiral into collapse.

So, excuse me, if I don’t believe anyone’s assertions or guarantees about anything. It only took one time getting burned by FMD to learn to not take any prediction too seriously.

Starrob

Your post implied that perhaps sales might fall off a cliff.

GauchoChris

  1. If that was your interpretation of what I said, I never meant exactly that and you took away the wrong interpretation of the point I wanted to get across.

  2. Generally, I remain open to all possibilities when it comes to stock investing. I give my strongest beliefs in stock investing only a 80% chance of happening, at best. Why do I do that? It’s because I have seen both myself and others walk around with a hubris about certain things being “guaranteed” or “not guaranteed” to happen and I have seen those guarantees be “wrong”. I have been on the Fool 10 years and I have watched thousands of predictions by fellow Fools, some of them made by participants in this thread, at different points in time and I watched a decent-sized portion of “All of Us” (not to leave anyone out) be wrong about something at one time or another (and not just being wrong about small things either).

The reason why this service was named “The Motley Fool” has been for a reason. It seems to be David and Tom Gardner subtly poking fun at themselves for not having all the answers. I don’t believe that I have all the answers and I don’t believe anyone else does either. By the way, I do believe scenarios in the universe exists in which “Nutanix’s sales could fall off a cliff”, even if I might not be aware of them. To me, in investing there would be no guarantees.

Starrob

In early 2018, NTNX was my highest conviction stock…

GauchoChris

Different people would be at different stages of analyzing a company. I only recently started seriously looking at Nutanix within this past month (because of the price decline) and since maybe you or others may have seriously looked at it longer than I have, then maybe you might understand why I or others might have different levels of conviction than you do.

I have my own process for developing conviction about a company and it might differ from yours. That’s why I simply say, "We all can agree to disagree" and it might simply be better to go back to discussing Nutanix itself, rather than debating which things would be necessary to understand a company’s competitive positioning.

Starrob

5 Likes