I don’t usually post specifically on Pure Storage too much although I have covered it in my portfolio reviews but I’m happy to on this occasion given that it has:
- 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
Pure continues to be an island of green in a sea of red that is my portfolio this year but for all of the above characteristics, Pure is as undervalued as ever and sits at a P/S of ~3 and a forward P/E of 27.
This is the best Q1 I have ever seen, (especially as it is seasonally the weakest quarter), in terms of: growth, which re-accelerated from 37% to 50% sequentially, total revenue performance, which beat by ~$100m in the quarter and also operating income, margin and cash flow which were all positive in the one quarter that traditionally is under water.
Pure has consistently been able to deliver revenue growth levels in excess of their guidance and their RPO growth levels and managed their profitability and cash flow excellently. They have penetrated 54% of the Fortune 500 and have over 10,000 customers. Whilst the land element still has potential, the story now is all about the expand side of the equation.
I look forward to seeing the next market report on their competitive position as their market share must really have moved up the rankings with this performance.
Q1 Non-GAAP EPS of $0.25 beats by $0.20.
Revenue of $620.4M (+50.3% Y/Y) beats by $98.66M.
Subscription services revenue $219.2 million, up 35% year-over-year
Subscription Annual Recurring Revenue $899.8 million, up 29% year-over-year
Remaining Performance Obligations $1.4 billion, up 26% year-over-year
GAAP gross margin 68.7%; non-GAAP gross margin 70.6%
GAAP operating loss $(4.6) million; non-GAAP operating income $85.4 million
GAAP operating margin (0.7)%; non-GAAP operating margin 13.8%
Guidance Q2: Revenue Approx. $635 Million (vs. consensus $604.64M); Non-GAAP Operating Income $75M; Non-GAAP Operating Margin Approx 11.8%
Guidance FY: Revenue Approx. $2.66 Billion (vs. consensus $2.59B); Non-GAAP Operating Income $320M; Non-GAAP Operating Margin Approx 12%
That revenue beat and being back up over 50% y-o-y really catches my eye. I was following PSTG very closely back in ~2018, and there are a probably a number of posts in the archive here on this board about it but it had fallen off my radar after selling the position off over recent years.
This report has caught my attention and I’m going to have to take a closer look.
formerly long PSTG & may buy some more in the near future
Just a few additional points:
50% growth comes off the last quarter of easier year on year compares vs 12% growth the previous year Q1. Still that was up against a tougher compare than previous 2 quarters of 37% and 41% which were up against -4% and +2% for Q3 and Q4 previously.
In the call they mention that some of this 50% growth is coming from revenues in the pipeline for H2 that landed earlier. So again 50% is going to be harder to match in this regard.
A couple of points that are real causes for optimism:
- Snowflake partnership
This is what they had to say about that…
Yes, Simon, this is Rob. So to answer your question on Snowflake, look, we’re super excited about the joint hybrid cloud analytics solution that we announced earlier this month. This is the first step in a strategic partnership that we’re forging with Snowflake. And we think that this joint solution is going to be a great fit really for customers who would benefit from the power of cloud-based data warehousing, but would also benefit from holding either tighter control or – over their data or want to manage and operate that data in their on-premise environment. We see early customer demand for these types of solutions for security reasons, customers that need to hold and manage the data more tightly for security compliance as well as customers who are generating a lot of data in the on-premise environment, that may want to share that data across multiple tool sets.
And so like I said, early days, but we’re seeing good signs of early interest, and we think this is just a great joint solution to bring the 2 technologies together for customers.
Over the next year the price performance of All Flash Arrays overtakes traditional disk storage. When this happens then the entire market should move in favour of Flash storage and Pure Storage as one of the leaders of the Flash storage market. The CAC benefit and the volume/value potential should really come through in full force.
Future focus on ARR and subscription revenues is still in play. This last quarter’s blow out was really characterised as a strong Capex driven product revenue quarter than weakness in subscriptions
Understood. And a quick follow-up for Kevan. I had to really squint to find [indiscernible] the press release. But I want to ask you on the subscription revenue side, it seems it was in line to consensus. When I look at the sequential growth, it seems like it’s not that much. And then when I look at subscription ARR, net new growth seems like it’s decelerated a bit. Was this mainly kind of a CapEx led quarter versus unified subscription led?
I think that’s right. That’s a good way to be thinking about it. I mean we had a lot of volume coming through on the CapEx side. But look, the subscription business continues to be strong. ARR growing 29%. I would be expecting variability quarter-to-quarter.
We’re very focused on accelerating growth with our partner ecosystem, a lot of great energy out there and looking forward to accelerate and talking to our partners around Pure as-a-Service. We’ve got some key milestones that we’ve identified around general availability for Pure Fusion and imported data services.
And really, this takes us on a roadmap that we’ve talked about that Charlie has laid out around really establishing a cloud operating model for every customer no matter where their workloads are being run. I’d say stay tuned, too. We’re very excited with some new announcements of Evergreen at //Accelerate as well.
- Attrition, supply chain and NAND pricing pressures all seem under control for now.