The Street Debates Pure Storage's Q2, Revised Outlook

All-flash data storage hardware and software company Pure Storage Inc PSTG reported second-quarter results Wednesday that were highlighted by a top-and-bottom line beat and upside to product revenue, billing, and gross margins.

While management revised its full-year revenue outlook lower, some Street analysts remain supporters of the stock.

The Analysts

KeyBanc Capital Markets analyst Alex Kurtz maintained an Overweight rating on Pure Storage with a price target lowered from $25 to $22.

Bank of America Merrill Lynch analyst Wamsi Mohan maintained at Buy, unchanged $22 price target.

Wells Fargo analyst Aaron Rakers maintained at Market Weight, price target lowered from $26 to $23.

KeyBanc: Bull, Bear Takeaways

Bulls will likely highlight the fact that Pure Storage's second-quarter report and outlook was at least in-line or ahead of investor expectations, Kurtz said in a Wednesday note. 

The company saw impressive 50% quarter-over-quarter growth in deals valued at $1 million or more, and new customers hit a record high, the analyst said. 

On the other hand, bears can argue competitors are "re-setting the market" to maintain market share, he said.

Pure Storage's management admitted the NAND market is oversupplied, and this reinforces the case for pricing concerns, according to KeyBanc. 

Related Link: Pure Storage Faces Near-Term Pressures, But Has Long-Term Tailwinds, Says Bullish BofA

BofA: Solid Quarter

Pure Storage is facing headwinds from lower pricing on NAND products, but the company still reported a solid earnings release, Mohan said in a Wednesday note. 

The analyst's takeaways from the print include:

• 28.3% year-over-year growth in revenue to $396.3 million.
• A 130-basis point rise in gross margin from last quarter and 150 basis points from last year.
• EPS was 1 cent better than expected.
• The product gross margin improved 130 basis points to 70%, while Support gross margin rose 110 basis points due to ongoing efficiency improvements.

"Longer term the company should see strong adoption for both its FlashArray and FlashBlade products with tailwinds from newer applications like NVMe and Artificial Intelligence, as well as additional Cloud revs coming online," Mohan said. 

Wells Fargo: Guidance Cut Was Expected

Pure Storage's downward revision to full-year guidance was mostly expected after peer NetApp Inc. NTAP reported weak earnings in its July-ending quarter, Rakers said in a Thursday note.

The company lowered its revenue outlook from $1.7-$1.77 billion to $1.645-$1.715 billion, which implies 23.5% year-over-year growth at the midpoint, the analyst said. The revised guidance factors in NAND price declines and a certain degree of "macro-driven caution," he said. 

Investors should also focus on Pure Storage's deferred revenue growth of 47% and its total RPO balance, which is included in the 10-Q disclosure, Rakers said. 

The company exited its first quarter with RPO at $723.6 million, and it likely grew at a rate that was in-line with deferred revenue, according to Wells Fargo. 

Price Action

Pure Storage shares were rallying by 15.93% to $16.08 at the time of publication Thursday. 

Related Link: KeyBanc: 3 Takeaways From Meeting With Pure Storage Execs