Nutanix (NTNX) reported a strong quarter exceeding expectations, though Oppenheimer’s top analyst Ittai Kidron says much of the bottom-line leverage was due to lower-than-expected hiring. The analyst believes that move will catch up over the next several quarters, but is already included in expectations. Kidron notes the positives about the cloud computing company like excellent large-deal activity (with records showing deals of more than $1 million), international traction and balanced contributions from new and existing customers. AHV adoption of 38% and multiple product adoption with Nutanix Core of 19% are both sectors that continue to climb. Kidron notes this expansion is encouraging and could accelerate even more as Nutanix strengthens its portfolio.
“We’re positive and see room for upside as Nutanix steadily converts more of its customers to a recurring revenue model (51% now and targeting 70%-75% over 4-6 quarters),” Kidron says. The analyst reiterates an Outperform rating for the stock with a $70 price target, showing a 63% upside from where the stock is currently trading.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Ittai Kidron has a yearly average return of 25.2% and a 66% success rate. Kidron has a 54.4% average return when recommending NTNX, and is ranked #21 out of 5,127 analysts.
Kidron refers to first quarter 2019 guidance as being “solid.” Revenue predictions of $313.3 million easily beat consensus of $305.2 million with guidance of $0.13 loss per share versus consensus $0.27 loss per share. International accounting for 40% of total software/bookings. Strong customer growth up 8.3% quarter-over-quarter, including 720 Global 2000 customers, was positive.
Kidron notes some Macro/FX uncertainties and negativity as well: “Anticipated spending to build out Nutanix’s product and go-to-market capabilities remains robust, including in many areas that will take time to mature. Normal hiring challenges in tech add to QtQ spending uncertainties. Dynamic and fast-moving competitive landscape for hyperconverged and enterprise cloud software (VMware, Cisco, AWS, etc.)”
Looking ahead, Nutanix management also highlighted expectations for recurring subscription business to reach 70-75% of billings over the next 4 – 6 quarters, which will encourage a steady increase in overall visibility. Kidron says due to the news, he is adjusting his model accordingly.
“We remain bullish on Nutanix’s product and go-to-market execution, which is driving strong demand from both existing and new customers. Large deal activity and steady increases in recurring revenue mix are also encouraging. Overall, we remain bullish and see a long runway for growth as the product portfolio fills in further,” Kidron explained.
Kidron is not the only fan of the tech company on Wall Street, as TipRanks analytics exhibit NTNX as a Strong Buy. Based on 16 analysts polled by TipRanks in the last 3 months, 13 rate a Buy on NTNX stock while 2 maintain a Hold and 1 a Sell. The 12-month average price target stands at $63.21, marking a 45% upside from where the stock is currently trading. (See NTNX’s price targets and analyst ratings on TipRanks)