Recent earning results demonstrate Commvault remains a favourite solution for 2017 onwards.
Research on Commvault activities have shown strong results and a positive outlook for Commvault, please read more in this brief article.
Overview
Commvault remains a favourite idea for 2017. Enterprise deal sizes are expanding (+8% q/q) as customers appear to be moving incremental capacity/applications to the platform for management of hybrid cloud environments. Improved tone on F2018 guidance and commentary related to recapturing 20% operating margin by F2020 should address leverage concerns. Raising our target to $63 on 22x EV/FCF; the historical range is 17x to 36x.
What Happened
Commvault experienced strong momentum in large deal flow during F4Q17, with enterprise deals up 10% y/y and an enterprise deal size of $282,000 versus our estimate of $272,000 and $261,000 last quarter. This, in turn, drove upside to software license revenue of $85 million (versus the consensus of $80 million) and total billings of $196 million (12% y/ y) versus last-quarter billings of $168 million (4% y/y). Referencing recent inflection point reports, customers are implementing hybrid cloud solutions with public cloud typically as an archive tier, Commvault benefits as customers expand the amount of workloads/capacity under management. Management noted improved confidence in F1Q18 and F2018 consensus estimates and reiterated longer-term goals of 20% license growth and recapturing leverage to 20% operating margin with a soft target of F2020.
What The Bulls Liked
Software license growth in constant currency was 18% (versus 15% reported and 8% last quarter) against what bears considered the beginning of tougher comps through F2017. A brief discussion of F2020+ operating margin goals suggests incremental upside potential to F2018/F2019 consensus estimates if large deal execution continues.
What The Bears Liked
Bears will argue that a move to subscription pricing under 606 will inflate license revenue in F2018, yet only a small percentage of customers are under this model, so the impact is likely minimal. Dependency on large deal flow remains a systemic risk.
Source: Pacific Crest Securities. The full report is available on request.
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