Bullish Analysts Brush Aside Near-Term Impact From Nutanix's Subscription Transition

Hyperconverged infrastructure software vendor Nutanix Inc NTNX reported a third-quarter revenue miss and issued below-consensus fourth-quarter guidance Thursday, sending shares to their lowest level in more than one-and-a-half years. 

The Analysts

Bank of America Merrill Lynch analyst Wamsi Mohan reiterated a Buy rating on Nutanix and lowered the price target from $51 to $41.

KeyBanc Capital Market analyst Alex Kurtz maintained an Overweight rating and lowered the price target from $48 to $40.

BofA: Results Look Worse Than Fundamentals 

Weighed down by lower-than-anticipated pass-through hardware, the transition to term-based software licenses and a higher deferred component in software billings, Nutanix revenues and billings came in below the guidance range, BofA's Mohan said in a Thursday note.

The same issues also led the company to guide its fourth quarter below guidance, the analyst said. 

The guidance was also impacted by a lead-generated billings slowdown, he said. 

Nutanix is investing in sales to re-accelerate billings and also suggested an uptick in new customer leads, Mohan said. 

The results look worse than the fundamentals, and the company's billings growth is likely to return to 40 percent-plus by the third quarter of 2020, the analyst said. 

BofA lowered its 2020 revenue guidance from $1.51 billion to $1.37 billion and the 2021 revenue guidance by $235 million to $1.178 billion.

KeyBanc: Model Transition Behind The Weakness

Nutanix attributed its weak guidance to ongoing leadership transitions and sales turnover in the Americas and internationally, although much of it may have to do with the transition to a subscription-based model, Kurtz said in a Thursday note. 

Software and support billings grew 11 percent year-over-year, below KeyBanc's estimate of 11.8 percent.

"We continue to see a franchise grappling with leadership and model changes but still competing in a growing HCI marketplace," the analyst said. 

Among customer metrics, the global 2000 repeat purchase multiple increased from 11 times in the previous quarter to 11.7 times; annual contract value increased 69 percent year-over-year; and cumulative $1-million-plus end customers grew from 65 in the second quarter to 69, according to KeyBanc. 

The Price Action

Nutanix shares were trading down by 13.35 percent to $28.31 at the time of publication Friday. 

Related Links:

Jefferies: Reward Potential In Nutanix Outweighs The Risk

Analysts React To Nutanix's Broad Pipeline, Target Delay