Analysts Review Pivotal Software After Mixed Q2

Pivotal Software PVTL fell over 20 percent after the company's second-quarter print. Here's a roundup of how the sell-side reacted. 

The Analysts

• Credit Suisse analyst Brad Zelnick maintained an Outperform rating on Pivotal with a $25 price target.
• KeyBanc analyst Alex Kurtz maintained an Overweight rating and $27 price target.
• Barclays analyst Raimo Lenschow maintained an Equal Weight rating and $22 price target.
• Morgan Stanley analyst Sanjit Singh maintained an Overweight rating and $29 price target.

Quarter Highlights

Credit Suisse's Zelnick said Pivotal's subscription revenue reached $97.5 million against a Street estimate of $94.8 million. This growth was driven by expansion, new customer adds and increased operating cash flow, the analyst said. 

Barclays' Lenschow said Pivotal demonstrated a better-than-expected net expansion rate of 150 percent, which often indicates an expansion plan that is working.

Morgan Stanley's Singh said the services mix continues to grow in congruence with a 9-percent year-over-year increase in services revenue. The operating margin improved significantly, the analyst said. 

Earnings Misses

KeyBanc's Kurtz said Pivotal displayed several weaknesses in the earnings report.

“Other key metrics such as $790 million in RPO (remaining performance obligation, a combination of backlog and deferred revenue) and net expansion rate of 150 percent suggest overall demand appears intact, and management outlined the billings weakness as a function of quarter-to-quarter deal lumpiness,” he said.

Billings growth was less than 2 percent, which, according to Barclays' Lenschow, is uninspiring.

After a strong first quarter, Pivotal only added 15 enterprise customers, the analyst said. 

Guidance

KeyBanc's Kurtz reiterated several key elements and investment considerations, including:

• The dollar-based net expansion, which refers to the cohort group of customers, and should create some challenges to recent activity.
• New customer additions. While they are important, execution in top accounts is more critical.
• Pivotal’s view that remaining performance obligation is the best indicator of total pending revenue, as it includes longer-duration deals with more stability.

Price Action

Pivotal shares were down 19.86 percent at $23 at the close Thursday. 

Related Links

Analyst: Here's What's Driving Pivotal Software's Post-Earnings Weakness

Morgan Stanley Sees Strong Growth Ahead For Pivotal Software