Nutanix Reports Q1 Revenue Beat: A Largely Bullish Sell-Side Reacts

Cloud software company Nutanix Inc NTNX reported Tuesday after the market close with roughly 14-percent revenue growth and a narrower-than-expected loss in the fiscal 2019 first quarter. Nutanix issued second-quarter revenue guidance that surrounded the consensus estimate.

The Analysts

Morgan Stanley analyst Katy Huberty maintained an Equal-weight rating and $57 price target for the shares.

Raymond James analyst Simon Leopold maintained an Outperform rating and reduced the price target from $71 to $53.

Wells Fargo Securities analyst Aaron Rakers maintained an Outperform rating and $70 price target.

KeyBanc Capital Market's Alex Kurtz reiterated an Overweight rating and $68 price target.

Morgan Stanley: Cloud Software Story Gains Momentum

Modestly higher revenue and lower operating expenditures led to the EPS beat, Morgan Stanley's Huberty said in a Wednesday note. The revenue beat came about due to improved execution on larger deals, she said. 

Subscription revenue more than doubled year-over-year amid a shift to subscription-based consumption after Nutanix's transformation from a hardware to software company over the past year, the analyst said. 

Citing the higher opex guidance for Q2, Morgan Stanley widened its loss estimate for the quarter from 20 cents to 25 cents. The sell-side firm increased its 2019 revenue growth estimate from 17 percent to 19 percent and hiked its bottom line estimate from a loss of 95 cents per share to 84 cents per share.

See also: Goldman Sachs Adds Nutanix To Conviction List, Says Hardware Revenue Decision Is Misunderstood

Raymond James: Competition Intense, But Nutanix Leads

Nutanix is solidly executing on its strategy of transitioning into a pure software business, Raymond James' Leopold said. Amid intensifying competitive pressure, Nutanix is leading the pack, the analyst said. 

Leopold sees opportunities in multicloud. As Nutanix shifts fully toward a software-centric supplier, the contribution of hardware to billings is now 8 percent compared to 26 percent a year ago, he said. 

Key metrics such as billings, deferred revenue and customer additions remain solid, Leopold said. 

Raymond James said its estimates changed little, but multiple compression in the peer group drove its price target down by over 25 percent.

Wells Fargo: Large Deal Validates Platform Story

Subscription revenue is expected to expand from 51 percent of billings growth to 70-75 percent over the next four to six quarters, said Wells Fargo's Rakers.

"Nutanix's ability to articulate its expectations of incremental revenue growth opportunities via subscription-based services is an important next phase in the company's growth/platform story," the analyst said. 

Nutanix reported 63 deals of more than $1 million in Q1, an acceleration from 47 deals in Q3 and 46 deals in Q4. 

This traction in large deals is an important validation metric of the company's platform story, according to Wells Fargo. 

KeyBanc: Q1 Results Were Good Enough 

KeyBanc's Kurtz termed the results as "good enough" given the increased competitive concerns from VMware, Inc.VMW and hyperscalers, elevated opex outlook and potential supply chain disruption.

Software and support billings came in line, Nutanix's mix skewed more toward hardware billing, the analyst said. 

To reflect the trends in large deal flow, KeyBanc raised its FY19 and FY20 revenue and billings estimates, while it forecast a narrower-than-expected loss for both years.

" ... Overall demand and competitive tone from management was constructive relative to weak overall market expectations into earnings." 

The Price Action

Nutanix shares have gained about 16 percent year-to-date, notwithstanding the broader market sell-off seen since October.

The stock was up 3.32 percent at $42.33 at the time of publication Wednesday. 

Related Link: Sell-Side Largely Bullish On Nutanix After Q4 Report, Undeterred By Disappointing Guidance