When Chaos Reigned

Quick Note Before we Start

This post is dedicated to the great Charlie Munger, who says, “invert always invert” – that mastery comes from defining how not to do something and reasoning up from there.

As we’re killing it, as numbers are so good Saul calls his gains “preposterous” this seems like a good time to stay humble, focused and thoughtful. Hopefully this post helps.

Okay. On to business.

When Chaos Reigned
The Wild-Ride Tale of One of Our Strangest Stocks

This is the story of one of the most bizarre companies ever to cross our path. It’s a stock that came to our board in late 2017 and stayed through 2019. It was:

  • Among the hottest in tech
  • Disrupting the cloud computing space
  • Valued at around $3B w a TAM that could exceed $180B
  • Run by a CEO with a rags-to-riches story who was hailed as a visionary, and even compared to Bezos and Buffett
  • Run by a CEO who was passionate about authenticity and corporate culture
  • Given a fantastic, unprecedented Net Promoter Score
  • Cited as a Gartner Magic Quadrant leader for “Completeness of Vision”

They had:

  • Buy-out offers from HP and Cisco prior to IPO but rejected them
  • A goal of $3B in revenue within three years (by 2021)
  • 1000s of customers, including 25% of all publicly traded companies
  • Solid margins sure to accelerate after a shift in strategy
  • A low valuation caused by the market misunderstanding their business plan
  • Only one major competitor and were part of a duopoly in their space
  • High margins, fast growth rates and were among the fastest to hit 1B in revenue
  • Opened offices around the world and growing internationally
  • Won accolades for their ferocious pace of innovation
  • Were growing so fast their biggest challenge was hiring enough sales and marketing people to keep up with the growth
  • A CEO who was appointed to the board of one of the biggest SaaS companies on Earth.
  • A Zack’s Strong Buy rating, were picked by Rule Breakers; hailed by Bert Hochfeld; fawned over by Jim Cramer and so beloved even Gary Alexander declared them a “long term champion”

And the stock, which came to the board in Sept of 2017:

  • Shot up 50% in just a few months
  • Blew past 160% gains in less than a year
  • Became a darling of our board, owned by virtually everyone
  • Flew up to over a 15% allocation for several top dogs

There’s no two ways about it. We fell in love. Yours Truly even posted a dang-near love letter to the CEO, who he thought could do no wrong. In fact, the stock generated a degree of passion that reached fever pitch. Throughout 2018/19 we were downright,

Spasming with greed

“Just an absolutely awesome company!”

“Innovating like mad”

“Firing on all cylinders”

“Their last earnings report was absolutely amazing”

“They have a Net Promoter Score of 90 !!! Now NOBODY gets a NPS of 90! It means ALL your customers think you are the greatest”

“Absolutely killing it”

“The numbers don’t lie.”

“Could easily double in a year”

“Screaming buy”

“If I didn’t own so much already I would buy more… hands down the best buy in our little universe of companies”

“One of the most honest and transparent CEOs I’ve followed.”

“CEO is a complete rock star … in another league”

“You can feel the energy with this company, it’s exciting and contagious. And their ambitions are ENORMOUS.”

“Winner winner chicken dinner”


In a poll we voted the stock most likely to be our biggest % gainer for 2018.

The devotion got so intense that analysts questioning our darling were derided as incompetent and conflicted. That often happens in Fooldom. But it was unusually fierce here. After Bloomberg wrote an article, quoting the CEO saying the company’s next big product would be delayed our board refused to believe it. We were disgusted to see the stock fall 10% as a result.

To refute Bloomberg, someone found a report from an analyst at RBC, who claimed he spoke to someone at the company who assured him the product would not be delayed. This provokes someone to denounce the Bloomberg story as “fake news” and offer a conspiracy theory that it was planted by our company’s top rival.

Consider that for a second. Analysts are routinely derided as conflicted when they disparage our stocks, but when a reporter at a reputable publication, Bloomberg, quotes the CEO on the record, we suddenly trust not just an analyst but his unnamed source. This, even though Pandey insisted he was doing the right thing by taking the time needed to get the product right.

Though everything I posted above was written on our board, euphoria and starry-eyed greed were not the only things expressed. And some of those things turned out to be questionable if not totally wrong. I just wanted to create the mindset here of falling in love with a stock.

The numbers were strong and likely to grow stronger. The company racked up tons of customers, had a small market cap with a large TAM, was a potential leader in cloud computing and won accolades from Gartner.

But this stock had a busted foundation. I’ll show why below. Think of this one like a decorated pilot at the helm of a high-tech jumbo jet. Though many, for good reason, say he’s brilliant and the plane is a marvel of modern technology, you still don’t want to fly with him if his eyes are bloodshot, his breath reeks of Colt 45 and violently swatting at demons. The crack in this stock’s foundation was so large it’s a wonder it wasn’t dating Kanye West.

Before we look at the crack, let’s look at,

How the Stock Performed

What a ride.

In Sept 2017, it came to our attention with a market cap around $3B, then,

Rose into the low 60’s in June of 2018 (wow)

Fell back into the 30’s in October 2018 (ouch)

Rose back to the low 50’s in February 2019 (sweet)

Then suffered a brutal drop after issuing terrible guidance on Feb 11, 2019 (run for your lives!)

At this point Saul, and our board’s top investors exited for good.

But get a load of this plot twist. Saul had given up on the stock earlier but was lured back in by the enthusiasm of our board’s most raucous cheerleaders and Bert’s conviction. His second position would lose 13%, which is a pittance compared to his gains but feels relatively Hindenburgian. And other stocks more than doubled in the same time-period, so the drop itself was not the travesty, it was the opportunity cost.

But let’s be clear. Here, I’m trying to improve an already elite system by making the point that the Narrative told us where the numbers would go.

So, what went wrong?

You may want to go do weewee. This could take a while.

And have you guessed which stock this is yet?

It’s Nutanix (NTNX). And the Founder/CEO was Dheeraj Pandey.

Author’s Note: I am deliberately leaving out the names of posters. If I name someone here it will only be Fools who navigated this debacle well, most notably Bear and Smorgasbord, while I myself got smoked. I’m trying to help us learn, not troll.

The Product

Let’s look at what the company does. This copy below was pulled from the company’s Q3 FY2017 report, and it was one of the very first things shared on our board.

We provide a leading next-generation enterprise cloud platform that converges traditional silos of server, virtualization and storage into one integrated solution that can also connect to public cloud services. Our software delivers the agility, scalability and pay-as-you-grow economics of the public cloud, while addressing enterprise requirements of application mobility, security, data integrity and control. We provide our customers with the flexibility to selectively utilize the public cloud for suitable workloads and specific use cases by enabling increasing levels of application mobility across private and public clouds. We have combined advanced web-scale technologies with elegant consumer-grade design to deliver a powerful enterprise cloud platform that elevates IT organizations by enabling them to focus on the applications and services that power their businesses. Our invisible infrastructure provides constant availability and low-touch management, enables application mobility across computing environments and reduces inefficiencies in IT planning.

The poster summed that up as follows,

To put what they do in a nutshell: NTNX provides “invisible infrastructure” to firms enabling them to easily use applications across diverse computing environments such as internal networks as well as public cloud environments.

That paragraph is an abomination. And though the stock would nearly triple from here that was luck driven by some good numbers, a compelling narrative about their pending switch from hardware to software and madness. That paragraph, that longwinded abuse to the English language is to investors what skeletons are to travelers approaching a cave: a cue to run away like Monty Python Knights.

While few of us know exactly how CrowdStrike thwarts bad actors, or why Zoom Video works, we know what they do. For me, the simpler the story the bigger the gains. Netflix, Shopify, The Trade Desk, are all simple stories. With Nutanix we didn’t even know what they did. The word complex or complicated was used almost every time they were mentioned. For example, in this headline from a Bert article,

Nutanix: This Rather Complicated Duckling Is Now Becoming A Swan

From 2017-2019 there were four types of posters:

  • Those who had no clue what they did but didn’t care because the numbers were so good
  • Those who overrated their own technical prowess and mistakenly believed they understood it
  • Those who realized the company was an un-investable mess
  • Those who understood what it did vs. what it claimed it was going to do

The last category was probably less than 0.0001% of investors.

When one reckless cheerleader posted a link to this article,

Cumulus and Nutanix Hyper-Converged Partnership: 5 Things to Know

He bleated, “Have no idea what any of this means, but it sounds really good!”

And in Saul’s post,

Category Crushers and my portfolio

He wrote,

“What does Nutanix do? Damned if I know.”

Saul was so befuddled he didn’t even know how to categorize it,

I’m embarrassed to say that I don’t know enough about the tech to know if it’s a Category Crusher or a Category Leader (please help me out on this), but I could safely put it down as a Rapidly Growing, Big Data, New Market Stock. I do know though, from what they’ve said in recent conference calls that they feel that they basically have no viable competition at the present time, so they probably are at least a Category Leader and maybe a Category Crusher. They are at 10.3% of my portfolio.

The company basically claimed they had NO viable competition? Many people thought VMWare/Dell had a better product. And Nutanix was constantly hailed as a disruptor. What were they disrupting, then, if not behemoths, Elmer Fudd’s sleep?

Amazon Web Services and Google Azure were, at various times, seen as competition. Or were they partners? Originally VMWare/Dell was a partner. But nothing at all was certain with this company. Here is a quick rundown of the complexity:

  • What they sold – few could define it
  • Problem they solved – reducing cost? Reducing complexity? Making the OS invisible?
  • Accounting – arguments erupted on our board about how they recognized revenue
  • Market size – 10B? 200B?
  • Partners/Competitors – VMWare? Google? Amazon? HP? No one?
  • Space they were competing in – hyperconverged infrastructure?
  • How Saul defines them – Category crusher? Leader? Rapid Grower?

Though the stock was on our board for over a year, and many Fools had double digit allocations, there were still furious arguments about what they actually did. One Fool challenged all to create an elevator pitch. Smorgasobord offered his,

Nutanix’s HCI makes it simple for an enterprise to setup and manage on-premise servers. They also have tools to help you manage both public cloud and on-premise servers via a single pane of glass, to support virtualized environment deployment (including desktops running on server), and to enable backup of your on-premise servers to a public cloud. Eventually, Nutanix will make it easy to move applications between private and public clouds so that you can balance cost savings, ease of programming, and load scalability with compliance and security needs.

Which caused Saul to ask what “support virtualized environment deployment” means which caused Smorg to respond, “Unfortunately, virtualization needs its own elevator pitch.”

When your elevator pitch needs a spin-off that’s a problem.

Here’s a key point that I still think is underrated. A company is, in essence, an expression of its founder. And it will reflect that founder’s strengths and weaknesses, which will either strengthen or weaken exponentially over time.

With Pandey, his weakness is that he’s gorssly inarticulate. And this was evident from day one.


Throughout this company’s 1.5 year-long soiling of our board, tech savvy Fools frequently expressed befuddlement at Pandey’s ignorance of the most basic concepts. One poster noted he misused the word “vertical” in describing the history of the PC industry. Bear listed some of Pandey’s more indecipherable utterances and cliches:

  • “building this business is like building a software”
  • “obviously there are things we don’t know that we don’t know”
  • “productivity is still a derived variable”
  • “Let chaos reign and then rein in the chaos”
  • “Right now, we’re doing first principle thinking, which is input-output”
  • “how do we go create new earth is a hard problem”

He wrote shareholder letters about the necessity of smaller players being paranoid in their fight against established giants, then would declare they had no competition.

Just how awful was Pandey’s communication? I need to back up a quick second to talk about marketing/communication. The hardest part of modern business is marketing. To gain mindshare, to stand out amidst the staggering amount of noise, to become a verb, to own a category is a massive achievement.

Conversely, consider these: Bitedefender, Securonix, Gurucul, Proofpoint and Sophos. Ever hear of them? Yeah, no one else has either. They all compete with CrowdStrike. And all are worth a fraction of CRWD. And they will never close that gap because the issue is settled. People don’t look for the best possible option. When you buy a car, you don’t test drive every single one with a detailed spreadsheet ranking every feature. You buy the first one that solves your problem. Even if one of those companies built a better mousetrap it would have to be astronomically better to get attention and provoke mass replacements of CRWD.

Nutanix’s greatest achievement was they took ownership of the impressive-sounding and apparently legitimate word: Hyperconvergence. This was their word.

Here’s an article from Spring, 2018 on MarketWatch.Com,

Is hyperconvergence the next big thing in tech?

The article quotes analysts saying hyperconvergence is an “extremely exciting space” and that “The growth rates are incredible.” It describes Nutanix as the “poster child for this new computing trend” and credits them with “having coined the term, ‘hyperconvergence.’”

Nutanix, for good reason, uses the word in all their marketing. And still does to this day. Again, it’s their word. Awesome, right? Apparently not. In an article published later that year,

Nutanix envisions what it will look like without hardware

Pandey appears in a video link. He’s being interviewed by the Wall Street Journal and trying to explain what Nutanix does. He makes a flighty analogy to climbing Mt. Everest. Then, just after the one-minute market he says this about how he approaches customers,

“We talk about hyperconvergence in a different way … we say look, forget about the word hyperconvergence. It’s an inane word. It’s meaningless. It means nothing.”

What the fudge? This is like Campbell’s Soup declaring “chunky” an inane and meaningless word, like Thor ridiculing his own hammer. And incredibly the interviewer doesn’t touch this jaw-dropping proclamation.

When you see Shopify’s CEO, Tobi Lutke and his COO, Harley Finkelstein talk about empowering entrepreneurs, or Jeff Green talk about making advertising better for buyers, sellers and consumers, or Jeff Lawson talking about building the ultimate communication platform they are relentlessly on-point. Always. Every single time.

Twice Nutanix missed numbers and cited an alleged failure to hire enough sales and marketing people to promote their growth. I doubt this was the issue. And they spent a fortune on S&M. It wasn’t that they lacked staff, it was that the communication was so poor. And my guess is the product lines were so confusing. One key thing we look for is products that are so good they practically sell themselves. How many installations of CrowdStrike, Shopify and Twilio were done without the purchaser seeing a single ad? Tons. And supposedly Nutanix’s Net Promoter Score was so high their customers were racing around the world spreading the gospel like John the Baptist.

On a comedic sidenote, both Marketwatch articles feature of photo of Pandey at a whiteboard with a complex doodle and the caption, Nutanix Inc. co-founder and Chief Executive Dheeraj Pandey attempts to explain hyperconvergence at the company’s San Jose headquarters. If he was succeeding surely the caption would read, “Dheeraj Pandey explains hyperconvergence.”)

I’m hitting this note so hard because if I’m right, if complexity is deadly and simplicity leads to bigger gains, than logic dictates this works in degrees: the simpler a stock’s story, the bigger the gains, the more complex the story, the harder it is to rack up gains. And that it gets harder the bigger they grow. Look at Roku. I get this is a good stock which has had excellent runs with a strong CEO. Respect. (Fist bump) But still it’s got hardware, software, advertising, and content. That’s a lot. And I think it’s part of the reason the stock has floundered this year. Same thing with Peloton: hardware, software, content – it’s a lot. And don’t even get me started on TDOC. Yes, they may all do well. And all are, compared to the masses, solid companies.

But look at our darling, CrowdStrike, how easy is to explain. You can feel the speed of the cash flowing into our coffers. Cause it flows on a clean, simple, single track: software to ward off bad actors.

Spotting Busted Foundations at a Glance

I think it’s entirely possible for a company to have a strong foundation but still fail. But if the foundation is busted, the stock is 100% certain to fail. A stock with a weak foundation is like an arrow that’s not properly designed. The further it flies the more off track it goes.

Again, consider the collective manpower hours this board wasted on Nutanix.

Here’s their foundation:

The name means nothing. It was created by a software program that makes up words. It spat out “Nutanic” but the founders thought slapping an X on the end sounded cooler. To me it sounds like cheap weight loss pills or some hyped cure for erectile dysfunction.

The CEO was inarticulate and prone to contradictions and misstatements.

The CEO frequently said, “Let chaos reign then rein in the chaos.” One thing I’ve taken from Saul is the idea that, within reason, we should believe what CEO’s say. If a CEO says it may take a few quarters to get profitable we trust that. So, when Pandey champions chaos as some sort of ideal that’s a red flag. I can’t fathom Reed Hastings or Jeff Bezos ever letting chaos reign. That’s what you hear from The Joker.

Even a quick glance at their product names reveals messy thinking. See if you cand find even a semblance of coherence in this group of words: Xi, Acropolis, Beam, Prism, Era, Calm, Flow. There’s no reining in that chaos.

The CEO described Nutanix as the “Uber or AirBnB of the cloud.” Say what now? And even here his thoughts are chubby. Pick one company to make your point.

I know some people chafe at these things. And that any one of them, alone, might not be fatal. But when you look at them in aggregate there’s just no way this this foundation can launch a winner. While it’s of course critical to study the numbers, there are times when the intangibles, the narrative tell us where those numbers will go. This time they all but screamed the numbers were doomed to crash.


Here’s how the stock performed after Saul exited in the mid-to-low 30’s.

It rose into the low 40’s
Dropped into the teens
Journeyed back to the mid 30’s
And fell into the low teens during the crash of 2020

Unless you could dance between raindrops, what really happened is from the time most sold out, it fell by over 60%.

Where is it now, five years after it IPO’d? Exactly where it started, still in the 30’s, though many of our stocks have soared. Shopify more than 10x’d.

The company never hit its goal of $3B in revenue by 2021.

At the end of 2020, Pandey resigned suddenly, with speculation he was forced out by investors, Bain Capital. And the new CEO is still talking about their allegedly gigantic Net Promoter Score and trumpeting the glory to come from another strategic shift, this time not from hardware to software but from a usage-based model to a subscription model.

That titan of a SaaS company that brought Pandey onto the board is Adobe and he holds his seat to this day.

Pandey is now the CEO of a company called Dev Rev. He was interviewed about it just last month,

Dheeraj Pandey on leaving Nutanix to start CRM startup DevRev

Get a load of the very first Q and A …

Q: Can you talk about leaving Nutanix to form DevRev?

Pandey: The business model transitions of Nutanix: going from hardware to software to subscription to, finally, smaller contracts with annual contract value [ACV]. This idea of DevRev is really about bringing ‘dev,’ which is the developer, closer to ‘rev,’ which is really a personification of the customer. By bringing them together, we are enabling a new business model which the rest of the world calls PLG [product-led growth] business models.

That is appalling. Reminds me of the expression 20 pounds of sh*t in a ten-pound sack. Notice how all of the issues that plagued Nutanix are evident right there in a few lines? And how odd his first line is in response to that question. The inarticulateness, complexity, pseudo-philosophical gibberish are right there. “Enabling a new business model” – again, no clue what that remotely means. And yet, this is a fellow who forever trumpeted his passion for simplicity and beautiful design.

Yet somehow despite enough red flags line the streets of a Kim Jong-Un parade, he has apparently raised another 50 million dollars for his latest cruise to nowhere. What the **** does this quote even mean - “rev is really a personification of the customer.” I’ll tell you what it means. The schnooks that put tens of millions into DevRev will be lucky to get out with half a cheek left on their arse.

The bottom line is Saul’s conviction that the numbers are paramount still holds. Nine out of ten times if the numbers are strong enough to wow our board, the intangibles and foundation are rock solid. But not always. And sometimes it’s the narrative that tells us where the numbers are heading. This was one of those times.

Fool On,

Broadway Dan

P.S. You’re now invited to join me for some important and I think valuable,

Wildcard Thoughts

With our stocks killing it, the market high and friends’ kids asking me to help them get in on the hot market action I’m feeling defensive-minded. And holding over 30% cash. This caution inspired me to study Nutanix, one of my worst investments, one that frankly was among our board’s biggest howlers – not for the results, but the breakdown of common sense.

Downgrading external rankings

Nutanix had high Glassdoor scores, was a leader in Gartner’s Magic Quadrant and had a Net Promoter Score over 90. I’m not dismissing these entirely just saying they are indirect knowledge and I prefer direct knowledge. When I watch YouTube clips of a CEO I can judge their intelligence, passion, authenticity, commitment for myself. I can see it with my own eyes, and study how their ideas and vision track over years, even decades.

Though our board lost its mind over Nutanix’s Net Promoter Score, I could find no evidence that this was a scientific metric given by a reputable organization. If I missed that I apologize. But there are tons of articles about Net Promoter Scores and great disagreements about their actual value. Some are even given by the company itself! What questions are asked? How many questions? When are they asked? Who are they asking? How are the answers verified?

Our board is like the FAA. We learn from disasters, fix our mistakes, and don’t repeat them. That’s why planes almost never crash in America. Having studied our board in depth from years past, you can see the improvement. When is the last time you heard anyone even mention Net Promoter Score?

On being mean to public figures

If you watch interviews with Pandey no one – not one person ever says to him, “What the **** are you talking about?” Or speaks with candor. While part of me appreciates Jim Cramer getting CEOs on his show at all they know they’ll be mollycoddled. The truth is he giggles, fawns and barely even pays attention to their answers as he buries his head in his notes. And it’s evident on every conference call. As if follow-up questions and straight talk is rude. CEOs get filthy rich off public markets – whether they make investors money or not. The ones who bank tens if not hundreds of millions, even billions, while their investors lose their shirts are vile.

Lousy CEOs deserve heated scorn. When you ask for other people’s money that is a sacred deal and while no one can demand success, gross incompetence is sinful.

Lofty words, wicked deeds

Though Pandey talked a big game about being humble the company spent like drunken sailors. I can’t find the video clip, but I once saw Nutanix’s booth at a trade show and they had laughable excesses including jugglers. It rubbed me the wrong way at the time. You would never see a guy like Munger hire jugglers. Beyond excess, it’s dumb.

Get a load of these two stories…

Nutanix CMO After Risque Conference Stunt: I Will Resign If It Happens Again

Nutanix caused a stir on Twitter last week after holding a party in Vegas featuring scantily clad female venue staff. One of the hyper-convergence startup’s top execs has vowed to quit if it happens again.

They greeted people at an event with scantily clad women on a Ferris wheel provoking one attendee to joke that this is how Nutanix “elevates women.”

And this one…

Why We Don’t Have a Nutanix NX-8150 Review

Nutanix sent an NX-8150 cluster for review, our testing revealed performance issues, Nutanix made several software updates over six months to improve performance, in June they asked to update our cluster with newer Haswell-based systems, we agreed, Nutanix then backtracked and refused to send the promised replacements.


And early on one poster decried their accounting “Tricks of hand.” Even while raving about the company he had serious doubts, saying, “NTNX is a fine company, pioneering company, market leading company, amazing company, also a funny company such as spending more than 100% of gross margins on marketing/sales. I do not know if I have ever seen that.”

One can only imagine the steak dinners, bottles of Scotch and wild Vegas nights put on those expense accounts.

Relationship Equity

It’s always good to see founders, or management sticking together for years. The better you know your team the better you work together. Turnover is costly.

Look at this aticle.

This founder left his $4 billion company before the IPO because he had an even better idea

This is a massive Narrative Violation. The author, discussing Aron’s departure from Nutanix writes,

To put this in perspective, it’s like Packard leaving Hewlett when things were going pretty well and the payoff hadn’t yet hit.

Why? Basically, he was bored, and he didn’t need the money.

“I’m not going to sit at Nutanix only to make more money. I’m doing this for my passion,” he says. “After being there at Nutanix for more than three years, the tech was mature, the go-to-market solid. Me, being a technologist, I wanted to solve the problem for rest of the data center.”

This guy was an early employee at Google who left Nutanix to create his own company in a similar space. My guess is he was the brains behind the outfit. Nutanix was supposedly this revolutionary, exciting, innovative company. But he was bored? The company was “mature”? It was still mid-transition, way early in its life. Compare this to the CTO of Cloudflare, who responded to my question on Twitter about what motivates him to stay now that he’s so rich by saying, “How often do you get to change the world?” Or something like that. He had said, “ask me anything”.

On Relative Strength and assuming the market is dumb.

Yes, the market makes mistakes, but overall, it does a great job of quickly processing information in a dynamic, fast paced world. When our board insists, for months, that the market does not understand our company, that’s a bad sign. That Nutanix was changing its model from hardware to exclusively software was not complicated. Yet, for a year we insisted the market was too dumb to appreciate this idea. In the end it was our board that didn’t understand how flawed the whole investment was.

Stop bashing analysts

Every time an analyst downgrades one of our stocks, we mock their conflicts, brains and even trot out their low rankings. Yes, analysts are conflicted and yes many are imbeciles. But many are intelligent, hardworking, decent people doing their best and we should exclusively focus on what the rationale is for the downgrade, not go full ad hominem on the analyst.

Narrative must be as Evidence-Based as Numbers

Narrative Investing deals with intangibles, story, character, branding and it is easy to use these as excuses to presume, guess and opine. Not good. Every assertion must be backed. Pandey’s ramblings are incoherent, the Nutanix culture – Vegas incident, accounting “tricks of hand”, run-in with a noted tech review site, bizarre commitment to chaos, randomly named company and product lines are evidence the foundation was cracked. And this evidence is every bit as valuable as growth rates and dollar-based net retention.

New term: Gum Flapulence

Pandey’s ineloquence is so extreme I’ve coined a new term for executive rambling, “Gum flapulence”.

On BS Press Releases and Questionable Awards

From their PR department. Oy vey.

Nutanix Blows Away Industry Net Promoter Scores

The efforts have paid off as Nutanix recently received both a NorthFace ScoreBoard Award with a Net Promoter Score that is off the charts for the IT industry.

The NorthFace Scoreboard Award? Is this the same outfit that awards the title “World’s Greatest Dad” to t-shirts?

The Broadway Dannies

Now for some real-value awards. I’d like to give two here, one to Smorgasbord and one to Bear. The Broadway Dannies is a new award show that recognizes outstanding contributions to our board. Here we celebrate staying rationale in a time of madness. Smorg’s award comes for these wise words,

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.

And this…

There’s a bunch of people on this board who believe that they don’t need to understand a business in order to make money investing in that business. I’m a simpler person, and so I do need to understand what a business actually does and how they intend to make money before being comfortable investing in it … I find that when I understand the business model I have better insight into what’s coming, and more importantly am able to put events into proper perspective.

L’chaim! And Bear wins one for this post which I’ll present in its entirety because it’s a powerful moment of SID Board history …

Nutanix: Customers & Offerings

Nutanix is difficult to grasp. It just is. I don’t know whether or not to trust them, because I’ve been burned by complex stories recently, like Pivotal and Talend. Nutanix seems to do similar “tricks” with the numbers, but maybe they’re above board. I just have a lot of questions. Some don’t really have answers other than the obvious, like “Why did they increase SBC so much when revenue was almost flat sequentially?” But others…we should be able to figure out. I came up with questions under 2 big headings: customers, and pricing. Can anyone answer them?

1. Who are their customers?
2. How big are their biggest customers? Smallest customers?
3. What does a Nutanix customer look like? (How many businesses need Nutanix?)
4. How much are all these new customers spending?
5. How much are their top and bottom customers spending?

Offerings: Pricing & Products
1. How does their pricing work? (Just a simple answer, if possible, like “Wix sells subscriptions which increase in $/mo. as customers want to use more of their offerings” or “Twilio gets paid a fee per-use, when customers use their platform. (ratable revenue).”
2. How does/did it work with “non-portable” software, and how does it work with SaaS? (Why was billings down sequentially? Especially when recognized hardware revenue was roughly the same as last quarter.)
3. What’s the segment revenue breakdown on their products? Do the other products besides Acropolis even make a dent?

This stuff really matters! With Talend I thought the story was “they sell subscriptions to data integration cloud and on-prem deployments.” But the real story was, “they mainly sell on-prem Hadoop integration deployments – that no one is buying anymore! They also have a tiny cloud segment that is 14% of total revenue but that is growing fast and that they hope is becoming their future.”

I had a big LOL reading this line, “This stuff really matters!” And “What does a Nutanix customer look like?” is classic. The first thought that pops into my mind is a yeti in a bowtie?

This post is an iconic moment of one Fool’s attempt to bring rational thought to our world gone mad. It’s like he’s imploring children not to mistake lead paint for a healthy snack.

The Trouble with Recs

Rec counts are often misleading. For example, during this debacle, one Fool made a serious and noble attempt to explain what the company does. The post got tons of recs, well over a hundred and many posters rushed on to cheer. But again, it was Smorgasbord who took on the unpleasant task of pointing out that despite the Fool’s best efforts he had no idea what he was talking about.

So, the point is there are times brilliant, prescient words go unnoticed while nonsense racks up high counts. This is because recs are often given for four key reasons but only one should count. They are:

  1. Effort, the poster tried hard
  2. Agreement, the poster likes our stock
  3. Entertainment, the post is funny, intense, interesting
  4. Insightful, the post helps us better understand the stock

Four is all that matters and should be the only reason to rec a post. We’re helping each other build and protect each other’s family fortunes not running an emotional support group. If this joint was about self-esteem, we’d meet in the woods for a drum circle and tears.

When in Doubt Get Out

And lastly one place where our top dogs shine here was how quickly and easily Saul, Gaucho, Novice and Ethan to name a few, race out the exits, never to look back, when they realize they were wrong. You never hear them wallow in regret or rage about injustice or denounce wasted time. This is because they’re too busy winning.

Unlike them, one Fool made a post that is would make Morgan Housel’s hair stand on end. After Nutanix showed their true colors with that horrific CC, this Fool came on and listed many powerful reasons to doubt the company. These were a damning list, a tough look at what he got so wrong. But he then turned on a dime and declared the price drop “capitulation”, predicted its future price action, listed “acquisition potential” as a “floor” to the stock price, and put up a bunch of metrics to justify calling it “under-valued”. He then said he’d merely drop it from a large position to a medium-sized one.

Maybe he got lucky and caught the bounce up before it crashed, but watching this person rationalize an awful investment with total guesswork is really something. In fact, Saul came on and all but pleaded with him to take his lumps and move on to the many better options we had.

I too made the same mistake with Nutanix, which thankfully I learned from, most recently by racing out the door after hours during Fastly’s fall from grace. Had we declared that drop “capitulation” we would have been groin-walloped with another 50% haircut and suffered return-crushing opportunity cost as the likes of NET, DDOG and CRWD have soared.

Acquisitions are Bad, Period

At best acquisitions limit upside and there’s no guarantee it will be for a good price. If you think there is a good chance your company will be acquired that’s a negative.

I suspect both Fastly and Stitch Fix will not exist in a few years, that both will be acquired cheap, and the tech rolled into bigger brands. No interest anymore in either one.

And the idea that Nutanix was an acquisition target was pure speculation.

Beware Sappy Stories

Reed Hastings, Jeff Bezos, Jeff Green, Jeff Lawson, Warren Buffett are boring. Good. It’s entirely possible that Pandey, as he claims, came to America with just $900 in his pocket and a dream. The reason I dislike this story is one - it’s hard if not impossible to verify. And two - intentional or not, it shuts down rational thought. It turns the CEO into an archetype, a Hortio Algier type character that we root for. We should not root for our CEOs, we should hold them accountable and rationally analyze their actions and performance. And again, I am NOT saying Pandey is a huckster, just that a tool of the huckster is a story promoting their own heroic origin.

Some stocks are like being dealt a pair of jacks in Texas Hold ‘em when your gut screams that two other guys have better hands. The odds say you have to play the hand, yet you just know that you’re being led to slaughter. Nutanix’s numbers made the stock like that moment.

“All I want to know is where I’m going to die so I won’t go there.”

– Anonymous


Great post, not sure if you were a part of the board back in 2015 but there was this incredible stock called Ambarella (AMBA)that we were all raving about. If I had to bet on any company back then it would be AMBA 100% they were a lock shooting to the moon.

Then this notorious short investor who heads Citron Research (Andrew Left)wrote an effective piece that eviscerated the company narrative essentially halving the value of the stock overnight where it stayed for the next 5+ years.

Stay humble no matter how resolute you are on the thesis, I’m never betting that heavily on any stock(was like 45% of portfolio)again.



Thank you for this article.

It reminds me of a German company called Wirecard. All German shareholders had Wirecard in their portfolio. The growth was gigantic and everyone was enthusiastic about the innovative company (does anyone know the company in US?). Then there were more reports from well-known shortsellers and articles from the Financial Times (Dan McCrum). The Wirecard accounting scandal led to bankruptcy.

One should also exercise caution.

As for Nutanix, I owned this stock for a long time, I sold out all shares last year. The Nutanix story is complicated, and not just the name. Kind of similar to Alteryx.


Nice story. Thanks. I was fortunate enough not to get caught up in the stock. I was just reading the board then and had not yet committed. But, I have had some of the same thoughts about snowflake. We can’t seem to describe how to measure its growth.



Thanks, Dan.

That was a great and informative post. The board does tend to be an echo-feedback chamber, where we shoot down naysayers and re-enforce our collective beliefs. I remember the article Bert wrote saying he had no idea what they did, but they were the smartest room of people he’d come across.

Years ago, I’d signed up for info from Nutranix, trying to figure out what they did. I often got invites to exclusive movie showings (just had to sit through a 30 minute Nutranix presentation).

And last fall, I got a email from Nutranix offering a throw blanked, a serving board for cheese (complete with cards and a cheese knife), plus some nice beer glasses. I realized that they were still somewhat adrift if that was their best marketing idea. The glasses are nice, but they didn’t put much effort into following up.


Thanks BroadwayDan for the history and the insights. This is a good reminder of many things.

I personally wasn’t following this board back then and missed the madness. So I took a few minutes and did a Sept/Oct 2017 search for Nutanix and read a few of the highly ranked posts. It led me to some interesting and informative posts by Saul, Paul, and others including this great thread on “The dangers of “Saul-type” stock” by Saul himself: https://discussion.fool.com/the-dangers-of-8220saul-type8221-sto…

I also saw much of what you mentioned and see some parallels to a few discussions going on today. In ’17 there were posts that stated “I wonder if …” regarding internal workings at NTNX (compensation, project plans, etc) with someone responding with a speculative answer that received many likes, as if the answer was clear and knowledge based. For recent examples, look at some of the recent debates on SNOW. That said, I am in no way equating SNOW with NTNX.

I’d like to add one clarification to your thoughts that tends to get debated here. Often some (including myself at times) dive into underlying technology and explain how a company’s technology works or what it means – the engineering brains in some of us like to geek out at the more detailed levels. Saul and others will often state that we don’t need deep understanding of the tech to invest in the company. To which someone may reply “but …” and geek out all over again.

Since I am not all knowing in the all technology arenas (far from it), what I find helpful is to try to understand the company from a customer perspective - which relates to how the company makes money:

  • What problem does the company (and/or it’s products) solve?
  • Who are the potential customers who have this problem? (possible TAM)
  • Do the customers know that they have this problem? (is this obvious or an evangelistic sale)
  • What is solving the problem worth to the customers? (will they spend money)
  • What is the effect on the customer if they don’t solve the problem? (what options do they have)
  • Who else is trying to solve the problem and can I see a way where they are better at solving it? (is there true moat, superior competition, etc)

We also apply the same questions to our own company’s solutions as we prepare our elevator pitches, sales/marketing information, strategies, etc.

With Nutanix I was never able to answer the first question, so I never invested back then (and missed out on gains). With CRWD, UPST, etc I think most of us can answer most of those questions. Then we can move to the next step debate the numbers and make investment decisions.

We can still debate the merits of the underlying technology, but we don’t have to understand the tech to make investment decisions. In fact my understanding the ML/AI tech (to a certain degree) and how it is used in China is what held me off on investing in UPST - and I missed some of the early significant gains. A case of knowing enough to be dangerous?

Side note: even though I never invested, I followed Nutanix in the news and trades for a while. I always remembered that they got the SW running on a drone and found a video from a trade show - https://vimeo.com/187893017
Nobody back then asked “Why? What problem are you trying to solve by doing this?” Everyone just thought it was cool.

Thanks again,
aka bornGiantsFan

  • who is depressed today that the Giants lost to the Brewers again and have dropped to 2nd place behind the evil Dodgers

I haven’t looked at NTNX in many months. What’s sad is that even today, TMF gets what the company does wrong. From https://www.fool.com/investing/2021/09/02/why-nutanix-stock-…

Nutanix, which provides hyper-converged infrastructure software to help companies seamless move applications between different clouds

That’s still not right.

SiliconAngle gets it better: https://siliconangle.com/2021/09/01/record-q4-acv-billings-r…

Nutanix sells a software-defined hyperconverged infrastructure, or HCI, stack that integrates compute, storage and networking components into a single appliance or cloud service.

But doesn’t mention that this solution runs in a company’s own datacenter on the company’s own servers. HCI makes it easy to setup and scale-up your own private cloud. And that’s the real problem with this company. Everyone’s moving away from in-house server to the cloud, and this company is providing solutions for the exact opposite case! Fifteen, maybe ten years ago, when some people had yet to learn to trust the public cloud, this would have been a huge success, but not anymore.

The company recognizes this problem with its business model, as the SiliconAngle article states a transition underway: A big part of the reason for Nutanix’s success is that it has broadened its roots from HCI into an array of storage and networking technologies.

But, the company’s business is still stuck in the past, with the CEO saying (admitting?): "For example, one of the things companies are doing is enabling virtual desktops and that’s an area we’ve been very strong in. It’s 20% to 25% of our business.”

Virtual Desktops (where you don’t store your files or run applications on your desktop or laptop computer, but use those computers to access files and run applications on your servers) is so last decade. I was at a company supporting those kinds of workflows back in 2009. And that’s still about a 1/4 of Nutanix’s business? Shrinking, too, I bet.

And the “holy grail” of Nutanix, that companies could move their applications seamlessly between different cloud environments, which people imagined as something that you wrote to run on Azure could be instantly and easily moved to AWS, for instance, became something much less interesting. Essentially, you can run Nutanix’s environment on your own servers or run it on Amazon’s or Microsoft’s or Google’s. So, if you’re willing to limit yourself to what Nutanix provides when you write your apps, you can move your app, but if your app depends on technology provided by those cloud vendors (eg RedShift) or depends on services/applications provided by those services (eg, DocumentDB) (as it almost certainly does, that’s a big reason to use a public cloud), then, no you can’t use Nutanix to move them to other cloud service providers, much less to your own in-house Nutanix server farm. People wanting to do that would probably choose Azure since it supports a wider range of public cloud services that can be hosted on your in-house Microsoft private servers (the “Azure Stack” offering from MS). And, no, Nutanix can’t solve this problem because, for instance, they don’t own DocumentDB and can’t support it anywhere except where Amazon supports it.

Nutanix is maybe one of those rare cases where if you look at either the technology and business model or the numbers the business is putting up, you abandon ship.

And if you’re wondering if this is a turn-around story, then just listen to where the CEO says his future is: “The important thing is that our hypervisor is now fully certified with Red Hat,” he said. “That eases the adoption of Red Hat in our customer base. Part two is that for customers who want to run a modern cloud-native stack, the two coming together provides a solution. We’re just getting started.”

Linux on the cloud is not the future. He’s saying that customers want to move applications from desktop machines running RH Linux to machines running RH Linux on top of Nutanix, and that somehow Nutanix’s offerings compete with "modern cloud-native stack"s like AWS, Azure, GCP? That’s like peddling TIVO in a ROKU world.


I made a few month 50% return that was a few month 100% return before I bailed. It really was not that complicated. (1) They never gained financial efficiency (they kept spending more on sales and getting less; (2) their multiple remained remarkably cheap for their growth rate and TAM, which is what compelled so many to want to be in Nutanix.

The only reason I got in Nutanix was because at one point the narrative began to look like the rhetoric.

What happened is that for the first time Nutanix, in a quarterly report put out by a major consulting company, ranked #1 in marketshare! Nutanix was starting to pull away from VMWare!

It did not last however. By the next quarter the same report showed that Nutanix has lost significant marketshare to EMC/VMWare. What happened was that Dell, who owns EMC and VMWare had decided to stop marketing Nutanix on its servers that it sold. They still sold servers loaded with Nutanix, if the customer requested it, but they no longer promoted Nutanix as an option.

It was well known that Dell was a critical distribution platform for Nutanix, but it was always stated that it was in Dell’s interest to keep Nutanix on its products and that customers demanded that they do. Turned out, that hypothesis turned out to be untrue as the loss in marketshare was swift. Nutanix still remained a strong #2 in the market, but in one quarter they lost significant share (I forget how much share, 5-10% in marketshare). Thereafter the share price crashed and the rest is history.

So, the issue was (1) no ability to gain financial efficiency, (2) stock multiple was remarkably cheap for a stock growing at this rate, (3) too much dependency on a competitor to distribute its product, and (4) inability to concisely articulate what they actually do.

Of these, with the follow the numbers method, #1 combined with #2 were a powerful stay away factor, but that one quarter where Nutanix suddenly moved to #1 gave hope that the narrative might turn around, so what the heck, took a rider. Made a nice 50% (that could have been 100%) and ruthlessly pruned.