No, this isn’t a post about Guns N’ Roses.

It’s a post about Pure Storage.

I admit to looking for good risk-reward scenarios. I’m a reformed value hunter (I don’t attend the meetings though) with the preponderance of my holdings in highly valued names. So while my portfolio is dominated by high growth companies, I still have a penchant for safety and some margin of error.

But enough about me. Here’s Pure Storage in a nutshell for their Q2 2020. I absolutely hate how newfangled companies can’t follow normal freaking quarters! I understand if your Q1 needs to start at different times, but at least make them follow the normal cycle for crying out loud!

Wait, I’m supposed to be talking about Pure.

First, many will downright toss this post to the side because Pure (dropping the “Storage” now for brevity sake) is a hardware company. I agree. They are. I’m trying to help you not have to read further.

Q2 produced growth of 28% just above the mid-point of guidance for the quarter. Gross margins were over 69%, the highest in company history. But Pure guided down a bit. A high growth stock would be slaughtered with the quarter, but we have to remember the price of Pure is completely in the tank. There “appears” to be a reason for the guide down that may actually be a benefit.

“Appears” is in quotes because the next paragraph is supposition on my part based on listening to the call. Others more knowledgeable in the Storage space please feel free to chime in.

NAND prices have dropped. The dynamics of this actually seem a bit more complicated than one might think. First, as prices drop, revenue per terabyte (TB now) drops. So unless more TB are sold, revenues will fall a bit for PURE. Ack!!! Hardware. But, flash also becomes more economical than it was compared to traditional storage at the same time and margins generally go up too. So you tell me where that ends??? At any rate, NAND prices are expected to stabilize going forward, and while the company couldn’t predict when prices will rise, it should be in the next few quarters. Supply is coming down based on the glut that drove prices down currently.

Guidance implies growth for the year at the mid-point will be only 23.6%. Guidance last quarter suggested 27.5% growth so there is a decent slow down due to NAND pricing. Management also hedged guidance based on the macro outlook but stated this was secondary compared to NAND. My best guess is 80% NAND and 20% macro. Management did state that macro did not seem to be an issue for them. It was tough to write that sentence after writing the one before it.

One data point and one anecdote on the macro situation to support management’s “feel” of the non-effect.
Deals pushed in the quarter were lower than the prior quarter (data point). Pure believes their vast outperformance as a market share gainer makes them immune (to a degree) to macro effects.

Good gravy, this is a long post. But if you have made it this far, here is the good news.

Pure is significantly outpacing any of their notable competition growing at roughly 10x their pace. NetApp had an awful quarter with Flash dropping something like 11%. Pure just grew 28% with gross margins of 69%+, OpM of just below 0%, FCF positive, cash on hand of $1.2B, net cash after senior notes of ~$700M, and what seems like an excellent management team to boot.

NAND prices will turn from a headwind to tailwind and even if they don’t market share will continue to rise and traditional storage will decline. When prices are a tailwind, revenue growth will increase, and, this guy believes, the stock price will rise.

Pure seems to have a great competitive advantage as a first mover in several important aspects of the storage business both on-prem and in the cloud. The valuation is confounding and can be a reason to stay away, but at the same time incredibly compelling.

I doubled my very small stake in the company today prior to the bell. It is my smallest position and one that I plan on building. The stock initially went down 10% and is slightly up as of right now. Whether it is down or up today doesn’t excite me. The business actually seems to have a great stride compared to its competitors, and I don’t see the storage market shrinking over time.

Interested to hear what others think and happy to answer any questions as best I can. I am not up to speed on any technical aspects.



AJ - thanks for getting us started on this. Ok I have reviewed the ER/slides and done some number crunching etc. I’m sure Bert will issue a note shortly as well but in the meantime:-

Here are the memos in case you didn’t get them (including: ER numbers vs expectations, ER guidance, ER & slides:-……………

I’m a holder and overall I am good with the results. There is a lot to like in this report.

PSTG grew the top line by 28% to $396.3m that marks 2 months of revenue acceleration. They are now forecasting ~$1.7bn for 2020.

By contrast (and a correction to AJ’s -11% number), this contrasts with NetApp’s AFA revenues declining 24% YoY and its “Strategic” revenues (Add on Software, Private Cloud and AFA - which is the most comparable to Pure’s revenues), declining by 29% to $337m or a 45% decline sequentially and forecasting ~$1.7bn for 2020. Their Cloud Data Services reached an ARR of $61m +189% which is good validation of the direction PSTG is also investing in.

Basically PSTG has now reached parity with NetApp in AFA revenues and overtaken them on a quarterly basis on a like for like basis. PSTG and NetApp are both targeting Enterprise now, growing cloud data services and private plus hybrid cloud business. The difference is PSTG is growing and NTAP is declining.

PSTG landed more new customers than in any Q2 in their history which is excellent as they then going on to expand like crazy, adding 400 in the quarter sequentially and growing the customer base 28% YoY. They have now penetrated over 40% of the Fortune 500 which is up from >35% a year ago, suggesting enterprise selling is working for them.

Margins are at a record high as AJ noted at 69%. PSTG returned to profitability this Q which is a huge from Q1 turnaround. They also had incredible cash flow for Q2 (the highest ever).

Cloud service subscriptions are taking off - “The subscription-based Cloud Block Store beta as part of Pure Cloud Data Services, is oversubscribed and early customer feedback has been overwhelmingly positive”.

Deferred Revenues of $607m are up 47% YoY and up $43m or 8% sequentially and constitute 153% of Q2 revenues vs 134% a year ago. Again - this compares with NetApp where deferred revenues declined $356m sequentially or 22%!

Their alliances are top draw: Cisco, Nvidia, Elastic and Splunk - all mentioned in the call.

Flashblade, FlashStack and ES2 were called out for outperformances this quarter as well as Public sector and NVMe fabric (something competitors haven’t even got around to competing on yet or talking about).

They see new products coming this year and next helping with Enterprise selling.

Future catalysts for a share price rerating I see include:

  1. Nand tailwinds
  2. Share repurchase plan
  3. Roll out and uptake of 5G and IoT connected device data storage requirements
  4. Continued maturation of AI
  5. Continued share gains vs legacy players

As far as guidance goes. They guided low on basically “conservativeness” and nothing else.
This was what they had to say about the July inflection point that NetApp called out:-
Victor Chiu
Hi, guys. This is Victor Chiu in for Simon Leopold. Can you provide some color around the linearity in the July quarter specifically, whether you saw business slowed during the month of July and reduced pipeline as you go into the October quarter?
David Hatfield
Yes. This is Hat. I’d say that we actually saw a really strong July, and we had solid linearity throughout the quarter, but differently what some of our peers were seeing. We actually see things really had great momentum toward the end and continued momentum in the beginning of Q3.

This company is heading towards a $2bn run rate and is delivering 28%+ actual revenue growth, 47% deferred revenue growth and increasingly becoming a storage as a service cloud subscription business model with the transition going nicely and all of the strategic priorities performing well.

It is chasing a $50bn TAM and killing a best of class competitor in the process (NetApp).

I commend this company, its management, its prospects and its stock valuation to the board.


Margins are at a record high as AJ noted at 69%. PSTG returned to profitability this Q which is a huge from Q1 turnaround. They also had incredible cash flow for Q2 (the highest ever).

While not specifically calling out Margins, I get the idea that this will come down over time as ASPs will lower which is why total year Outlook dropped:

Pure Storage CEO Charles Giancarlo said in an interview that the second quarter was marked by a dramatic drop in the price of NAND flash memory, the dominant component in the company’s storage arrays. While he says pricing has stabilized, Giancarlo notes that results will be affected the rest of the year by the reduced NAND pricing as it flows through to Pure’s customers. In short, Pure’s customers can now buy the same amount of storage at lower prices.…

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Hello Ant,

Thanks for the summary, I will read the transcript tomorrow. When NTAP posted miserable results and blamed the macro situation and Pure was taken down further, I raised my position 50% to become a nearly 17% position. I thought then that NTAP’s problems were Pure taking market share.

At this stage, they are seriously gaining market share, cash flow positive, positive adjusted eps, and, as you point out, nearly a $2 bln revenue enterprise with leadership in a very important segment of the digital economy.

My thesis is that their growth at around 30% will be quite a bit less than the true hyper-growth companies, but their stock price will keep up with the best as they have such a low base of price/sales.

I am pleased with their performance.

Best regards,

Mike (long PSTG)



I believe that gross and net margins improved because of the drop in nand prices. This used to be more important for Pure when they were trying to convince prospective customers that the cost of flash (nand) even though higher than disk still provided a total cost of ownership benefit. As the price of nand comes down, Pure is able to improve margins even while further closing the gap with disk.

Pure has alway benefited from the price of nand as they are more software driven in their flash and do not require the higher quality (and higher-priced nand) of their competitors.

I believe that today Pure benefits from having a better flash product than NTAP and EMC, and also from the customers looking to get out from under the yoke of the legacy providers to a supplier that is deemed superior to work with on a value basis, a service basis, an innovation basis. AND an “anybody but my current supplier” basis. Therefore, the nand price advantage for Pure has lessened even though it remains in play.

Best regards,



Ok Mike - look forward to your reaction too.

Agreed on your evaluation although what I would say is:

Apart from Shopify none of our hyper growth SaaS enterprises have got anywhere near this kind of revenue run rate and many have yet to breakeven.

I would doubt that at ~$2bn run rate whether many of them will be in hyper growth or even outgrowing Pure Storage. (That’s not to say that Saul or any of us might put up with such a decline but the reality is, future growth is not a given).

As it is non many of them have a $50bn TAM to address with such a long runway and an obvious/visible tailwind of digital storage requirements.

If/when the market ever comes risk adjust its valuations of hyper growth companies, I could see PSTG really coming into its own in terms of relative valuation.

PSTG grew the top line by 28% to $396.3m that marks 2 months of revenue acceleration.

Just a correction that I noticed I needed to make:- that should have been 2 quarters of revenue acceleration not 2 months.



Interesting thread guys. Thanks to Phoolio for bringing it to the board. I’m not sure that I would sell one of my current positions to invest in it, but I always liked Pure, the company, though not always Pure, the stock.


To give a bit of history of Pure Storage(PSTG) on this board.

Started investing in January 2018 around $17
Dis-invested in August 2018 around $26
Currently $14

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I agree the valuation is very very interesting… but i recall our sage Tinker’s saying… cheap gets cheaper… and Pure has proven that so far over last few years… market has consistently declined to give it benefit of doubt… partly because HW company… but i suspect partly because their revenue has been enterprise focused… and not hyperscaler / cloud focused…

ofcourse, enterprise is where they can get good margin (they would not get even half these gross-margins with cloud providers), but enterprise is a slow decline space for HW and so by default, growth investors dont want to get in…

This was my conclusion after painfully holding hope on PSTG for a long time…
I was glad to get off sometime last year and not looked back…

Now we have people on this board making a killing on things like Enphase… so hey you may be right on this one but I am still hesitating.

One difference for me, some of you mention that they have revenue coming from cloud and hybrid cloud, that seems to interesting… will have to study it further… specially if they are able to get revenue from cloud market at good enough gross margins… that’s the key.


Not in regards to Pure,
But Enphase, have been holding it since June 13th and it has already doubled! I just wish It was a bigger percentage of my portfolio!

Hello Nilvest,

One difference for me, some of you mention that they have revenue coming from cloud and hybrid cloud, that seems to interesting… will have to study it further… specially if they are able to get revenue from cloud market at good enough gross margins… that’s the key.

They have partnered with AWS on a cloud offering called Cloud Block Store that we will hear more about at their Accelerate conference. They did sound excited about this on the cc.

I am very impressed with Pure’s innovation. They have grown the company to nearly $2 billion in revenues in less than 10 years and seem to have a long runway ahead.

Best regards,


First, thanks to Ant for correcting a few things in my original post, namely NetApp’s closest comparable segment falling 24% and not the 11% I suggested. This is really terrible considering NetApp is transitioning it’s existing customer to flash so their flash growth is likely cannabilizing traditional storage. At any rate, the difference between the two businesses is stark.

However, I wanted to write a bit more regarding NAND pricing as I’ve had more time to think about it.
However, I will state the following is unconfirmed and again is a bit of supposition on my part. What got me thinking about it was an analysts question on the conference. Additionally, on another forum one person believes Pure’s lack of pricing power suggests a potential weakness.

Here is how I believe Pure sets up their contracts with customers. First, the contracts are likely sold on a terabyte (TB) basis. In order to protect both the buyer and the seller, I imagine there are price incraeses and decreases built into them based on current costs of NAND. I would think there is an industry pricing baseline that could be used with both parties agreeing to it.

Without this, the company would be opening themselves up to incredible variability in margin. It would be feast or famine. Also, the customer would be locked into pricing based on the original contract amount and may miss out on a great deal when storage pricing goes down. So while it does make some sense on the customer’s side, where this really makes sense is for Pure. I’m sure Pure doesn’t want to run a business that has wildly fluctuating margins. And investors don’t want that either.

So, this will impact revenues - down when pricing is down and vice versa. But margins will be relatively stable with Pure probably taking a couple percent when prices are down and giving back the same when prices are up.

The business/industry I am in, does not work this way. It is absolutely feast or famine. When steel costs are down, we print money. When they are up, we don’t make nearly as much. As an investor, that is not a desirable situation and, thus, Pure’s motivation for the arrangement above.



Not in regards to Pure

Then you are OT and guilty of thread hijacking. One-line anecdotal posts are not helpful here.

I’ve been kicked by the wind, robbed by the sleet
Had my head stoved in, but I’m still on my feet

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To give a bit of history of Pure Storage(PSTG) on this board.

Started investing in January 2018 around $17
Dis-invested in August 2018 around $26
Currently $14

That shows some excellently fortuitous timing. What did you base your August 2018 sell decision for Pure on, as that could provide some beneficial insight?

I bought in early 2018 and have held some PSTG ever since, seeing it go from around $17 up to $29 and then back down to $13, even touching $12 ever-so-briefly with the initial reaction after their earnings last week, due likely to some funky algos or maybe badly placed orders, before then rising up to near $16 that same day.

Are you a fan of Penguin Cafe Orchestra, perhaps?

still long PSTG