On Nutanix and the delay in Xi program

Here’s how I think about it, and remember that I could be completely wrong. I’m not computer and tech savvy, and I am approaching this from a common sense point of view instead of a tech point of view.

How dissatisfied are customers in Nutanix WITHOUT the Xi program. Well Nutanix has had a net promoter score which averaged 90 for the past five years. NOBODY gets a net promoter score of 90 even once. It’s crazy high! It’s an extreme outlier! It probably puts them in the top 1/1000th of customer satisfaction. It means that their customers absolutely love their products. LOVE them! And this is without the Xi product being introduced yet.

Their January results included revenue up 44%, billings up 57%, software billings up 60%, deferred revenue up 57%, cash flow from operations up 135%, free cash flow up over 300%, million dollar deals up 104%! A dollar based net retention rate over 120%. These are awesome results !!! And this was without the Xi program!

The revenue was up 44% even with them not counting a lot of previously counted hardware sales. Revenue grew by about 52% on an apples to apples basis. Gross margins ticked up to 63.5% from 61.9%. Bookings were up 13% sequentially and 57% from the year before. The book to bill ratio was 1.24. Customers spend 410% of initial purchase in repeat orders over the first 18 months. And this is without the Xi product being introduced yet.

Gartner rated them the top leader in their space for Completeness of Vision and Ability to Execute. And again, this was without the Xi program being introduced yet.

I might trim a tiny bit of my Nutanix because it’s my largest position, and bring it down from a 15% position to a 14% position or something like that, but I think that anyone thinking of substantially reducing his position in Nutanix because of a program delay is way over-reacting.

I think the market agreed. A 5% drop on a down market day was nothing. Nutanix was up about 48% for the year before the drop Friday. Some stocks drop 20% on a good market day just because their earnings were great but their guidance was cautious. I think Nutanix isn’t giving a new date for release because they don’t want to predict an early date when they actually think it will be ready, because they don’t want to take a chance of disappointing again with another delay. I think that’s wise.

It think this is just an absolutely awesome company! The Xi release will come, but they’ll do fine as far as results until it arrives.

But that’s just the way I see it. If you don’t agree, go back and read the numbers I posted above.

Saul

PS - If you are not familiar with Net Promoter Scores they rate how likely a customer company would be to recommend Nutanix to another company. Possible scores go from -100 to +100 in a bell shaped curve, and a score of 15 or 20 is considered a ‘good’ score. Plenty of companies get negative scores. A score of 90 puts Nutanix way out in the tail. As I said, maybe in the top 1/1000th of companies.

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Saw this on StockTwits

https://www.rbcinsight.com/WM/share/ResearchViewer/?YYY340_a…

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In my weekend push to better understand Nutanix, I came across a couple of events that appear to raise concerns. Saul posted about one here back in April, to which almost no-one responded at the time. But maybe now that we understand the business better we can have that discussion now.

Saul asked: How dissatisfied are customers in Nutanix WITHOUT the Xi program…Gartner rated them the top leader in their space for Completeness of Vision and Ability to Execute. And again, this was without the Xi program being introduced yet.

Nutanix makes setting up and running a your own private cloud easier. One doesn’t have to piece together different storage solutions and virtualization solutions and backup solutions - Nutanix has that all integrated together, and provides some performance advantages apparently not available in piecemeal solutions. In addition, Nutanix makes managing your private cloud really easy, from cluster-view dashboards to one-click upgrades to multi-cluster management.

But, it’s still all just for private clouds. The Xi release was originally intended to support public clouds, but it’s taking far longer than they anticipated: https://www.bloomberg.com/news/articles/2018-04-27/nutanix-s…

What Nutanix has released thus far includes “Cloud Connect,” which enables backup to the cloud in a cost-effective manner. I haven’t gotten into the details, but it seems to be you backup to AWS or Azure or whatever, and then if you have an earthquake/flood/etc. you can setup a second datacenter somewhere else and restore from the cloud to that - and be up and running very quickly.

But, this isn’t running your Nutanix processes on public clouds, or integrating public cloud services with your private cloud services in such a way that application developers don’t care which they’re on. It does seem to be limited to backup. From the article:

Amazon invests billions of dollars a year to broaden the capabilities and capacity of its public cloud, which houses data from different tenants at huge centralized centers around the world.

Nutanix has taken a different approach, focusing on small and mid-size data centers that share space with other companies. Pandey is wary of making the same mistakes in the cloud that HPE did, such as not having a clear strategy. … Rather than chasing the outright volume of AWS, Nutanix’s public cloud will be a backup for customers’ existing systems and help connect remote offices and other business locations.

My view is that while there’s quite a bit of competition, Nutanix is really good at marketing. I think the customers using the products are very happy, which, of course, is a great sign. But, investing-wise, I’m concerned that the hype is leading people who don’t understand what Nutanix really does today to think that they’re heading towards some kind of nirvana in which companies can have Applications that move freely and instantly between public and private clouds without a migration step. That may be some future vision goal for the company, but it’s not likely to happen any time soon.

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