Oppenheimer Encouraged on Nutanix (NTNX) Despite Steep Operating Expenses in FQ3 Print

Oppenheimer's Ittai Kidron notes, "we remain buyers" on NTNX despite short-term higher-than-anticipated OpEx levels.

Nutanix Inc (NASDAQ:NTNX) revenue may have been strong in the third fiscal quarter of 2018, but the company’s net loss per share proved worse than anticipated; profit not only in the quarter but as well as in NTNX’s guide for the fourth fiscal quarter came up shy of Wall Street’s expectations. As a reaction, shares have stumbled 5% this morning in pre-market trading despite the revenue outclass.

Oppenheimer analyst Ittai Kidron takes the cloud software firm’s quarterly show as a positive taste of steps forward in software evolution. Additionally, the analyst commends new products and announcements boosting the company’s enterprise cloud vision and stance in the market. As such, the analyst is confident on Nutanix’s prospects in the future. Even if short-term operating expenses soar sharper than expected, the company nonetheless is cultivating a robust base between R&D and sales that assist stellar growth level sustainability, notes Kidron.

Therefore, the analyst reiterates an Outperform rating on NTNX with a $70 price target, which implies a close to 33% upside from current levels. (To watch Kidron’s track record, click here)

For the third fiscal quarter of 2018, the cloud software firm posted $289.4 million in revenue and a loss per share of $0.21, against the Street’s expectations calling for $278.7 million in revenue and a loss per share of $0.19. Billing hit $351.2 million for the quarter, soaring far ahead of the Street’s $332.8 million forecast. Gross margin of 68.4% likewise yielded a beat against the Street’s estimate of 67.6% as well as the tail-end of the company’s guide. That said, a jump in hiring pushed operating expenses of $232 million over the guide. Glancing ahead to the fourth fiscal quarter, the NTNX team sets the guide between $295 and $300 million in revenue and guides to a loss per share of $0.20 to $0.22 against the Street’s $289 million projection and expectations for a loss per share of $0.13.

Overall, “Nutanix reported another solid quarter with sales and billings ahead of expectations, strong large deal metrics, positive international trends, and guidance reflecting continued expansion and progress with its software transition. We’re encouraged by the execution and management’s long-term vision (presented at Nutanix’s March analyst day and expanded on in May at its .NEXT conference) focused on becoming the enterprise cloud (delivering a complete stack on invisible infrastructure, managed through a single pane of glass). We believe the vision and product road-map are differentiated and will support a long runway of high growth (note ~40% CAGR in management’s $3B/FY21 billings target). The near-term trade-off is higher-thanexpected OpEx levels, but we’re comfortable with the investment given the size of the opportunity/execution shown. We remain buyers,” Kidron concludes.

TipRanks exhibits a strong bullish consensus that likes the odds on this tech stock. Out of 19 analysts polled in the last 3 months, 16 are bullish on NTNX stock, 2 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 9%, the stock’s consensus target price stands at $60.24.

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