Nutanix‘s (NTNX 0.00%) year went from bad to worse following the May 25 release of the company’s fiscal 2022 third-quarter results (for the three months ending on April 30) as investors punished the stock over management’s woeful guidance.
Share prices of the enterprise cloud platform provider plunged 23% in a single session despite impressive growth in the company’s sales and billings, as well as a reduction in its adjusted loss. Let’s see what went wrong for Nutanix last quarter, and check why investors may want to take advantage of the 56% decline in the company’s share price this year to buy this cloud stock for the long run.
Nutanix delivers a solid report but gets rattled by near-term disruptions
There was a lot to like about Nutanix’s quarterly report. The company’s revenue was up 17% year over year to $ 404 million, while the non-GAAP gross margin increased 160 basis points to 83.3%. Nutanix reported an adjusted loss of $ 0.05 per share for the quarter. This was a big improvement over the prior-year period’s loss of $ 0.41 per share thanks to a higher proportion of sales coming from the subscription model.
The company’s cumulative customer count increased 13% year over year to 21,980. More importantly, Nutanix saw a spike in customer spending thanks to healthy demand for its cloud platform, which allows clients to adopt a hybrid multi-cloud model. This is evident from the nice jump in the number of customers with lifetime bookings of $ 1 million last quarter.
Nutanix had 1,747 customers who spent at least $ 1 million on its offerings at the end of fiscal Q3, an increase of 22% over the prior-year period. What’s more, there was a nice increase in the number of high-value customers. The number of customers with lifetime values of $ 5 million to $ 10 million increased 21% year over year. There was a 26% year-over-year spike in the number of customers who have spent at least $ 10 million in lifetime bookings on Nutanix’s solutions.
It is worth noting that 92% of Nutanix’s revenue and billings last quarter came from the subscription business. Also, the company’s annual recurring revenue – which is the sum of the annual contract value of all subscription and services contracts at the end of the quarter – increased 46% year over year to $ 1.1 billion.
However, Nutanix’s near-term outlook was clouded by supply chain delays at its hardware partners. Nutanix usually books a significant portion of its orders toward the end of a quarter. But unexpected supply chain challenges at the end of the fiscal third quarter meant that its new subscription contracts would start at later-than-expected dates, depending on the availability of hardware from its partners. Additionally, Nutanix ran into higher-than-expected attrition in its sales force last quarter, which further impacted the company’s outlook.
Thanks to these challenges, Nutanix is now forecasting fiscal 2022 revenue of $ 1.54 billion, down from its earlier expectation of $ 1.63 billion in revenue. The company’s fiscal fourth-quarter revenue forecast of $ 350 million and billings forecast of $ 180 million have also fallen way short of Wall Street’s expectations. Analysts were looking for $ 439 million in revenue from Nutanix this quarter, along with billings of $ 215.8 million.
However, Nutanix’s management is confident that the near-term challenges don’t point toward a slowdown in demand for its hybrid cloud platform.
Investors shouldn’t miss the big picture
Nutanix’s growing customer base and spending indicate that it is operating in a fast-growing space. The company estimates its total addressable revenue opportunity in the hyperconverged infrastructure (HCI) market – which refers to the integration of different data center elements such as storage, computing, networking, and management into a software-defined platform – could hit $ 30 billion by fiscal 2025.
What’s more, Nutanix also sees an additional $ 30 billion worth of total addressable opportunity in adjacent markets as well, which brings its overall revenue opportunity to $ 60 billion. For comparison, Nutanix’s total addressable opportunity in the hybrid cloud and adjacent markets stood at $ 39 billion in 2020. So the rapid expansion of Nutanix’s end-market opportunity should help the company sustain its top-line growth.
On the other hand, Nutanix expects to bring down its sales and marketing expenses to 43% -47% of revenue by fiscal 2025, compared to 79% in fiscal 2020. This explains why analysts expect its losses to decline substantially in the next three years. .
So if investors look past the near-term problems that Nutanix is facing on account of factors out of its control, buying the stock looks like a no-brainer thanks to the massive addressable market it is sitting on. Even better, investors are getting a good deal on Nutanix right now, as the stock is trading at just two times sales – compared to its five-year average sales multiple of five – and that’s despite reporting robust double-digit percentage growth last quarter.
All of this indicates that buying Nutanix looks like a good idea following its sharp decline this year, as the cloud stock could regain its mojo and step on the gas in the long run.