Recent earning results shows Nutanix are delivering high value, large deals.
Research on Nutanix activities has shown solid improvement in large-deal execution, please read more in this brief article.
Overview
Nutanix Large-deal execution improved q/q, specifically in million-dollar-plus transactions (34 deals). Top 25 spending was up 13% q/q and 58% y/y (PCS estimate). We are adjusting our multiple down to 5x from 6x to reflect a higher expense outlook. With improved confidence in North American sales execution, we see 3x EV/F18E revenue as an attractive valuation.
What happened
Nutanix demonstrated solid improvement in large-deal execution through higher sales force productivity in North America as the company posted 13 deals greater than $2 million, up from 4 in F2Q17, totaling $45 million in bookings (with two transactions combined worth close to $14 million).Within Global 2000 customers, bookings were 50% higher than any previous quarter and more than 50% made repeat purchases. Nutanix returned to historical levels for deals over $500,000 with approximately 45% of deals. Nutanix remains one of the top brands for partner engagement as IT organizations continue to evaluate HCI during system refreshes, new application deployments, and hybrid cloud build-outs.
What the bulls liked
Mixed Dell commentary was positive given negative investor sentiment in the quarter, as Nutanix noted Dell represented about 20% of backlog but down to 9% of AR from 11% in F2Q17. Software was 16% of TTM bookings vs. 15% in F2Q17, remaining on track for one-third of bookings longer term. Bulls will highlight increased market coverage through new hardware partnerships with HPE and IBM complementing Dell, Cisco Systems, and Lenovo. Despite NAND headwinds, product margin was stable to positive at 56.9% vs. our 55% estimate and is expected to rebound in F2018.
What the bears liked
Opex looks to grow faster than expected through F1Q18 and limit some leverage upside on the improved revenue outlook heading into F18. The Dell mix will remain a key focus point as most bears see Dell/EMC reps shifting pipeline over the next few quarters and also see this playing out with Cisco reps/VARs with HyperFlex.
Source: Pacific Crest Securities. The full report can be found here.
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