Saul bought a little lately.
A year ago,Ant wrote:
Pure Storage
Q1&2FY23
latest results as I know there was interest from last quarter when it returned to hypergrowth levels then the details are here:
https://investor.purestorage.com/news-and-events/press-relea…
and the presentation here:
https://s21.q4cdn.com/687136699/files/doc_financials/2023/q2…
Essentially Pure Storage beat and raised across the board and whilst revenue growth dropped back from 50%+ to 30% which was inevitable as last quarter had some pull forwards in some revenue renewals from this latest quarter - so across the 2 quarters they might have averaged a more consistent ~40% growth had the revenue recognition timings been normalised. In any case their subscription revenue growth was maintained at a consistent 35% and the ARR accelerated to 31% and has an ARR business alone of $1bn.
Apart from that though…
Cash Flow went up 3x
Op Inc went up 10x
Op Inc margin went up 5x
It became GAAP profitable which is almost unheard of amongst our companies
Within a day of release 4 analysts raised their targets as a result to between $35-$42.
This company is brilliantly managed, has incredible cash flow, has highly geared leverage and excellent margins.
Q1
- Returned to hyper growth with 50.3% Q1 revenue growth at scale with a $2bn+ revenue run rate
- Exhibits consistent SaaS level GM at ~70%
- Delivers emerging software level operating margin at 12-14%
- Possesses a business model that comes with ARR approaching ~$1bn, ($900m+ after Q1)
- Announced some potentially monster deals with Snowflake and AWS in the quarter.
Me here:
This company’s been on my radar, again, since Ant wrote that. I can’t remember why I didn’t follow up then.
Yes WSM’s post was also compelling:
Q1
I just listened to the latest two conf calls of PSTG again, and I have to agree. I think your quote from the CEO is spot-on.
‘What also struck me is the difference in tone in the two calls. In Q4 last year they were cautious, spoke of macro headwinds, lengthening sales cycles etc and then guided for mid to high single digit growth and flat growth in Q1.
Then in Q1 they were decidedly more bullish. The tone was very different. And yet, they didn’t raise their full-year guidance, so didn’t really pull the Q1 beat forward. They stuck to “mid to high single digit growth”. And there were a couple of things that they made explicit about the guide which had the distinct feeling of further de-risking to me.
First was that they spoke about the record traction that their new Flashblade//E product - which only launched end April - was getting. But they didn’t pull any of this higher than expected traction through in their guide. They stuck to a “modest revenue ramp in the second half of the year” in their guide. And yet this was their commentary about that product:
“Early interest in FlashBlade//E is off the charts for a new product.”
And in the Q&A:
I’ve been in front of dozens of customers now and the excitement with customers around this product line and with the prospect of replacing their disks, which are troublesome, with all flash products has been very high. And as I mentioned, I think what’s most exciting is that we’re seeing customers appreciate the fact that we can address the majority of their storage needs and to be able to do that with the simplicity, the power, the ease and the reliability of Pure products. So that’s – I have to say the enthusiasm that when any one of us go in with the new pitch, if you will, to our customers, that we feel coming out of it is really palpable.”
And in relation to a question about AI:
“[…]frankly, we are at least as excited that customers now more and more are going to want to put their data that is in cold, hard-to-reach hard disk systems and make that available for analysis by putting it in much more higher performance flash-based systems. And both FlashArray//C and FlashBlade//E are perfect repositories for that. So we think it’s coming out at a perfect time.”
→I cannot see, given the extremely bullish remarks from the CEO about how groundbreaking this product is, that there will only be a modest ramp, and only in the second half of the year. I believe this product will overdeliver handily vs what they have promised/guided to.
Second, they made explicit that they did not include any new orders from Meta in the guide (although two different analysts had to drag that tidbit out of them). And yet, the CEO had this to say about Meta:
“We continue to have an excellent relationship around AI with Meta. They recently fully turned on the first 2 phases of their research supercluster, which they announced a few weeks – a few weeks back, and we look forward to continuing to work with them on that project as they continue to build it out, but also on other projects that they are contemplating in the other parts of the company.”
→ again that does not sound like there will be no orders from Meta this year…
The other thing I noticed was just how much progress they are making on the subscription revenue side (which grew 28% yoy last Q vs -5% for the company overall). This is the progression of % of revenue which comes from subscriptions:
Sub rev % total | Q1 | Q2 | Q3 | Q4 |
---|---|---|---|---|
2021 | 32.8% | 32.5% | 33.1% | 30.2% |
2022 | 39.4% | 34.6% | 33.4% | 30.5% |
2023 | 35.3% | 35.9% | 36.2% | 32.7% |
2024 | 47.6% |
Stockfanatic
-
My investing thesis is based on the following*:
-
Strong growth of subscription business vs. legacy business (hidden within overall revenue)
-
Several strong tailwinds: (1) AI adoption and need for fast data access (flash storage), (2) new product launches incl. solutions with strong ROIs, (3) shift towards flash storage in big data centers, (4) strong partnerships (Meta, NVIDIA, MDB etc.), (5) overall growth in need for data storage etc*.
To sum it up: I believe the investing case for PSTG is that revenue growth might (!) see some significant acceleration and that this is currently not priced in (rather low valuation, poor growth on paper atm, low interest in stock as attention is focused on other tech stocks like NVIDIA/SMCI etc.)
Me here: I held a position in Pure Storage 4 years ago and ad some appreciation of the founders and the direction of the technology.
I need to look more into current competition. Bert Hochfeld at Tickertarget.com hasn’t any recent articles on Pure Storage, as far as I know from a quick search. Anyone?
I started a 3.7% position today with the cash I had and sold an equal amount of my Rediculously overweight position in Tesla and am looking to add more to PTSG, as my confidence increases.
Best
Jason