How Will Early Adoption of New Accounting Rule ASC 606 Impact Nutanix Inc (NTNX)? BTIG Shares Two Cents

These new accounting regulations will lead to an 8% rise in reported revenue, says analyst.


Nutanix Inc (NASDAQ:NTNX) is one of the companies paving the way in the tech world complying with new accounting stipulations circling how software license revenue from customer contracts is recognized: rule ASC 606.

At the close of its first year as a public company, and with $465 million in deferred revenue (a fraction of which must be uprooted to the first quarter of 2018), the enterprise infrastructure equipment maker’s early adoption of these new accounting rules have BTIG analyst Edward Parker saying, “Keep calm and ASC 606 on.”

Mostly positive on the company, the analyst remains sidelined due to long-term apprehensions, specifically questions of growth and margin sustainability, maintaining a Neutral rating on shares of NTNX with a $22 price target, which represents a 2% downside from where the stock is currently trading. (To watch Parker’s track record, click here)

Weighing in on “some added wiggle room” on profit and loss amid this new accounting approach, the analyst surmises: “Reported revenue will see a ~8% increase due to the change in recognition of previously deferred software-only revenue to an upfront basis. Furthermore, net of minor changes in deferred commissions, gross margin and operation margin accordingly see a benefit on the P&L. Importantly, billings and cash flow see no impact. The impending standards change continues to be an overhang across the sector, and to that end management’s early adoption and transparent disclosure around changes will prove helpful in reducing confusion. Of note, while commentary on yesterday’s call explicitly stated no change in business outlook or fundamentals, management declined to update prior commentary on breakeven target (~1Q19, assuming post-606 accounting) or long-term operating model targets (based on pre-606 accounting), suggesting that the balance between growth and leverage remains a dynamic and variable formulation.”

TipRanks analytics showcase NTNX as a Strong Buy. Out of 13 analysts polled by TipRanks in the last 3 months, 10 are bullish on Nutanix stock while 3 remain sidelined. With a return potential of nearly 34%, the stock’s consensus target price stands at $30.09.