In a fireside chat, the enterprise infrastructure equipment maker presented with CFO Duston Williams, largely focusing on last week’s fiscal first quarter showcase for 2018 that took a lot of investors off guard. The NTNX team intends to kickstart an “aggressive” business model evolution from an appliance company to a predominant software firm.
Leopold notes that for this top merchant of hyperconverged infrastructure (HCI) solutions, the “heart” of the company’s business has “always” pivoted on software, but these changes follow a steep dip in posted revenue throughout the coming fiscal 2018 “as pass-through hardware is no longer reported as revenue.” However, this is balanced thanks to a meaningful boost in posted gross margin following a rise in software in the mix coupled with the performance of gross profit dollars, which the analyst finds on a parallel track for fiscal 2018.
“In the discussion, management emphasized that there is virtually no change from the customer perspective, and that the new business structure more accurately reflects Nutanix’s true nature as a business. We agree with management’s logic in general; Nutanix’s platform has always been built from off the shelf hardware and is available as a software only solution implemented on partner hardware platforms (i.e. Dell’s XC platform which runs Nutanix on Dell PowerEdge servers). Subsequently, at the core, Nutanix’s value has always revolved around the software,” highlights Leopold.
While the company’s CFO made a case for an unaltered competitive playing field in the last year, the analyst finds this “a bit surprising” considering rival HP Enterprise’s takeover of Simplivity and the product launch seen from competitor NetApp. Additionally, Williams pointed out Dell had fallen under 10% of bookings for the first time since going public. From Leopold’s perspective, he finds himself full of curiosity as to what drove a “seemingly sudden shift,” one that appears vastly changed considering Nutanix’s standing just beyond a year ago after becoming a publicly traded company.
Ultimately, the tech player’s trajectory long-term has Leopold trumpeting a bullish forecast, even amid a prospective short-term transition period, as the analyst concludes: “We continue to see Nutanix well positioned to capitalize on the potential trend of enterprise hybrid cloud implementations as the public cloud matures, but could see confusion for investors, particularly around valuation, in the near term as they adjust to the new business model.”
In light of these takeaways from the tech conference, the analyst maintains an Outperform rating on NTNX stock with a $37 price target, which implies a close to 9% increase from where the shares last closed. (To watch Leopold’s track record, click here)
TipRanks analytics points to an overwhelmingly bullish analyst consensus for Nutanix, with 13 of 15 analysts polled in the last 3 months rating a Buy on the stock and just 2 maintaining a Hold. The 12-month average price target stands at $39.75, marking a nearly 17% upside from where the shares last closed.