Should You Buy Nutanix Stock After The Earnings Beat? Nutanix Inc (NASDAQ:NTNX)

  • Nutanix reported a beat on both the top and bottom line. However, the stock declined by 4% in the after-hours.
  • The company issued a better than expected guidance for the next quarter.
  • The after-earnings pull back provides an opportunity for risk-seeking investors.

Shares of San Jose, California-based Nutanix Inc (NSDQ:NTNX), tanked 4% in after-hours trade yesterday, in spite of the company reporting a strong performance in its first earnings release since the IPO. The company reported a beat on both the top line and bottom line. The company also issued better than expected outlook for the next quarter. Nutanix had listed on the NASDAQ Stock Exchange on September 30th at $26.5 per share against the issue price of $16. The stock is currently trading below the first day close price of $37.

Why Nutanix Stock Fell

Nutanix stock fell in the after-hours trade in spite of reporting a better than expected earnings and improved outlook, mainly due to the widening of losses from the year-ago quarter and also partly because of profit booking. Nutanix stock has rallied more than 45% in the last one month. In the latest quarter, Nutanix saw a 4 fold jump in the GAAP net loss. The company reported a net loss of $162.16 million compared to a net loss of $38.5 million in the same quarter last year. The multi-fold jump in the net loss was mainly due to increased stock-based compensation which jumped from $5.4 million to $90.7 million. Nutanix has to keep a lid on its stock-based compensation to keep its margins in control. It is the same issue which is plaguing other internet and tech companies such as Twitter. Even the non-GAAP loss per share widened by $0.1 from the last year. However the decline in NTNX stock is likely to be a blip, and the stock is likely to bounce back.

Better Than Expected Results

Nutanix reported a lower than expected loss with the non-GAAP EPS coming in at -$0.37, beating the average analysts' estimate by $0.07. On the revenue front, the company reported $166.8 million in revenues, beating analysts consensus of $152.2 million, up more than 90% YoY. Billings increased by 87% YoY and 16% QoQ. The company also reported a positive cash flow from operations of $4 million, compared to a cash outflow from operations in the same quarter last year. However, the free cash flows remained in the negative zone. Overall, Nutanix had a fairly good quarter. According to CEO Mr. Dheeraj Pandey "Our first quarter results are reflective of the strength of our thesis on how enterprise computing will morph in the coming three to five years." (Also Read: Is This The Time To Buy NTNX Stock?)

Strong Growth Will Continue

In the latest quarter, Nutanix added 705 end-customers taking the total number of customers to 4,473, more than a 100% increase from last year. The company is likely to keep the growth in customer acquisition going. The company recently announced new capabilities including network visualization, orchestration and security, which will further increase the value of the Nutanix Enterprise Cloud operating system and extend the company’s competitive differentiation, helping it deliver higher value services and acquire more customers. Nutanix has also acquired PernixData and Calm.io which will enable the company to accelerate and further automate the delivery of its Enterprise Cloud operating system.  A report on Barron's expects Nutanix to increase its market share going forward.  To quote from the report:

"According to our 3Q survey, Nutanix and Simplivity were among the top vendors that respondents expect to grab increasing wallet share in the next 12 months. We think this could be an indication of the broader industry’s shift towards converged and hyper- converged offerings"

Two other factors that will propel its revenue growth are the higher mix of recurring revenue in the total revenue and growing deferred revenue. According to the investor presentation made by Nutanix, 65% of its total revenue is recurring in nature, almost similar to last year. This high percentage of recurring revenue will act as a strong tailwind. Also, Nutanix is seeing strong growth in its deferred revenue which increased by 260% YoY to $375 million. Deferred revenues are revenues which the company has already received but has not yet recognized because there is still an obligation left on part of the company. These revenues are periodically accounted for in the P&L boosting the company's revenues in that particular quarter. (Also Read: Twilio Inc Has A Bright Future, But Be Cautious Right Now)

Strong Guidance

Because of these tailwinds, the company is bullish in its outlook. In the earnings report, the company provided guidance for the second quarter, which was better than expected. Nutanix expects Q2 2017 earnings per share to come in around -$0.36 to -$0.35, compared to analysts' consensus  estimate of -$0.37. The company issued revenue guidance of $175-180 million with a mid-point of $177.5, which is over 5% higher than the consensus revenue estimate of $168.37 million. To quote CFO Duston Williams:

"The backdrop of our $100 billion addressable market continues to provide many opportunities for disciplined growth.  This quarter our federal business significantly contributed to our strong performance. We also are pleased with the evolution of our business model, with this quarter marking the fourth consecutive quarter of positive cash flow from operations."

Conclusion

Cloud storage firm Nutanix reported a beat on both its top and bottom line in its Q1 2017 earnings. The company also provided a better than expected outlook for the next quarter. There are several things going in the company's favor, but as with every high growth company, there are risks. The company faces strong competition from deep-pocketed companies like Cisco, HP and VMware. The company is currently trading at a PS (ttm) of 9, which is very expensive, even for a growth company like Nutanix. Any slowdown in growth will result in a swift fall in the stock. While NTNX stock enjoys a buy rating from Wall Street, investors should be mindful of the risks.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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Comments on this article and NTNX stock

jliv
bullish
NTNX is not a "cloud storage" company. We offer an Enterprise Cloud solution that encompasses storage, compute, and virtualization at web-scale. It's kind of like AWS in the form of Legos. ;)
reply
Do share this awesome post