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VMware Has Hit A 'Tipping Point,' Analyst Upgrades

VMware Has Hit A 'Tipping Point,' Analyst Upgrades

Analysts at Bank of America turned bullish on VMware, Inc. (NYSE: VMW) Friday as the company's second-quarter earnings report and conference call reinforced the company's ability to transition its business. The firm's Kash Rangan upgrades VMware's stock rating from Neutral to Buy with a price target boosted from $108 to $120.

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VMware could see success in its transition from an upfront business model toward a recurring subscription model across the entire product portfolio, including NSX, vSAN and possible ESX as a service, Rangan commented. Perhaps more important, this trend will also be accelerated by VMW Cloud on AWS.


Cloud transitions resulted in a superior valuation for other tech companies as investors tend to value recurring revenue streams as superior versus a license revenues mix, Rangan explained. For instance, as VMWare's cloud transition accelerates the stock's valuation could be similar to that of Adobe Systems Incorporated (NASDAQ: ADBE) where the Creative business and digital marketing businesses are valued separately.

"We believe VMW has hit a tipping point whereby licenses from new and faster growing products such as NSX, vSAN, EUC are ~50% of license revenues and will increasingly inflect growth and plant it more firmly in double-digit territory," the analyst concluded. "This would potentially reduce license cyclicality."

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Image Credit: "A section of the VMware headquarters campus" By BrokenSphere - Own work, CC BY-SA 3.0, via Wikimedia Commons

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