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Pure Storage: Hold On For The Long Term

Jun. 01, 2020 4:01 PM ETPure Storage, Inc. (PSTG)13 Comments
Gary Alexander profile picture
Gary Alexander


  • Shares of Pure Storage have rallied only modestly despite recently releasing strong results to a coronavirus-impacted Q1.
  • As a company that sells primarily products and not subscriptions, Pure Storage's revenue deceleration of five points in Q1 came in harder than for most other tech companies.
  • However, Pure Storage also delivered nearly ten points of operating margin gains, and bookings growth clocked in at 24% y/y.
  • Pure Storage also believes that the pandemic has increased customers' interest in Pure-as-a-Service, allowing Pure Storage to build up its recurring revenue base.
  • Pure Storage also has a substantial ~$1.3 billion cash balance ($0.8 billion in net cash).

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Pure Storage (NYSE:PSTG), the flash storage company that is attempting to re-invent itself as a SaaS subscription offering, remains one of my favorite value stocks to invest in during the pandemic. The company tests well against two important criteria: one, despite the near-term revenue hits, the coronavirus pandemic is actually a long-term boost to Pure Storage's technology and demand; and second, the stock still remains below comp valuations.

In light of the impact of the coronavirus, Pure Storage recently released strong Q1 results that smashed Wall Street's estimates on both the top and bottom lines. Revenue growth decelerated, as expected, but Pure Storage more than made up for that with a huge corresponding boost in operating margins and cash flow. Still, shares have barely moved since:

Stay long here - there's a plethora to like about Pure Storage at current levels.

Subscription shift

The key thing investors should know is that Pure Storage believes the current pandemic to be an accelerant in the company's long-term goal of becoming a subscription-oriented company. Flash storage has long been a product-oriented business: companies buy the storage units they need, and the only recurring revenue that they generate is perhaps a support contract to service that previous purchase. The coronavirus, however, has increased the need for businesses to be agile and to rapidly scale up and down their infrastructure.

As such, on the Q1 earnings call, CEO Charles Giancarlo noted that Pure-as-a-Service had a record quarter:

Pure's subscription services had an outstanding quarter. Subscription services include our non-disruptive Evergreen services, Pure as-a-Service, and Cloud Block Store for multi-cloud environments. Evergreen reduces the risk and economics for customers by ensuring

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I am/we are long PSTG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (13)

Great article, but I think the article misses the point on earnings. The company has not been able to generate positive returns for all the quarters while all it's competitors have been able to do so. It looks like PSTG is buying market share, evidenced by the very high S&M to market ratio. Storage is now a comodity and cloud storage even more a comodity, I do not see how PSTG will have an advantage here. Moreover the Flashblade product being only 15% of the revenue seems a failed product after 4y of sales under the belt.
what we need flash for dont we have cloud
What do you think cloud providers are using to store data?
They are not paying for 70% gross margin on commodity storage. That's for sure.
The fortune 2000 doesn't put their most important tier 1 applications only in the cloud. According to IDC, 58 percent of companies will leverage a hybrid cloud strategy. Only 18 percent of companies globally have a plan to be 100 percent cloud in the future. Let that sink in..... 18 percent!!!! Keep in mind that it is not the top global companies and the world is going to be hybrid. May the best storage company win!
Technologie is moving faster than Pure is developping it‘s products. Not Good ....
SA Editor Marc Pentacoff profile picture
How so?
mcmaced profile picture
Gartner named Pure Storage the technology leader in primary storage!
Pure is moving faster than its storage competitors in everyway
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