Investors reacted badly when Nutanix (NASDAQ:NTNX) reported weak third-quarter results that missed consensus estimates. This is the second consecutive quarterly report that, despite operating in the fast-growing cloud and datacenter sector, confirms the business faces plenty of headwinds. With Nutanix stock at the risk of breaching 52-week lows, should technology investors bottom-fish at these levels?
Nutanix closed a number of big deals with customers in the quarter, but it was not enough to beat consensus revenue estimates. Revenue barely changed from last year, falling 0.6% to $287.62 million in the quarter. It lost $1.15 a share on a GAAP basis and lost $0.56 a share (non-GAAP). Markets are unwilling to patiently wait for the company's long-term growth story to play out. As sales transition from hardware and towards software, whose contract is shorter and dollar value is smaller, investors are selling first and asking questions later.
Source: Nutanix
Though the shorter subscription contract length lessens the revenue per customer, the high margin subscription revenue growth of 110%, to $168 million, should continue growing in the quarters ahead. Subscriptions accounted for 65% of its billings, up from 41%. The demand to move to a hybrid cloud will give Nutanix more predictable revenue over time. Throughout the life of the contract, customers may buy other offerings.
The shift to a subscription model will raise the revenue deferral rate, hurting upfront quarterly revenue recognition. This is also having a negative impact on sales. The company said:
The selling impact has the potential to slow down and extend sales cycles as the Nutanix sales rep, the channel rep, the disty [ph] and the Nutanix customer all must become educated on the benefits of this new licensing methodology versus the prior life of device licensing structure.
Source: SA Transcript
Nutanix forecast subscriptions accounting for over $80
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