Nutanix shrugs off loss, rivals, buys another firm Hyperconverged player Nutanix reported second fiscal 2018 quarter revenues of $286.7m, up 44 per cent on a year ago and 4 per cent on the prior quarter. Profits seem as far away as ever, with a net loss of $61.5m, better than the prior quarter's $90.7m loss and the year-ago quarter's $76.4m, but not by much considering the …
Having read what Forbes has to say about Nutanix: https://www.forbes.com/sites/greatspeculations/2018/02/21/stiff-competition-could-sink-nutanix-stock/#1e6b626e1e53
and your comment: "Profits seem as far away as ever, with a net loss of $61.5m, better than the prior quarter's $90.7m loss and the year-ago quarter's $76.4m, but not by much considering the revenue rise involved."
My real concern is how do they plan to turn a company gone public 18 months ago into something profitable? Will they have to charge more? Deliver less? Or both in order to become profitable?
No, this is not what it says.
You can make assumptions from other data points that the pipeline (nobody says sales pipeline btw) is growing but not from this. All it says that more cash has been received for services not yet rendered and that liabilities have increased by the same amount on the balance sheet.
In other words: Thank you for these $1m, mr. customer. In return I promise to replace failed hardware, keep a sufficient number of qualified employees on payroll, develop new software features/acquire companies to keep the product competitive and innovative.
This cash is being spent and not invested. FY2017 cash flow/net income was $-450m against revenue of $760m. So they spent a total $1.2bn in one year. On research and development to crush the competition? Sadly, no.
Stock payment to execs was $250m, 1/3 of revenues. (Execs are cashing out big time)
Sales and marketing $500m.
Cost of revenue $300m (this is manufacturing and payments to OEM and suppliers). This is high but the least alarming issue. They are transitioning into a software company and this should decrease to healthy levels fairly soon.
So where does this go from here? As long as money is cheap and they find someone willing to make million dollar bets, this will go on. But for that they will have to achieve and maintain a market dominating and monopolistic position. Or at least be on a clear trajectory to one. Frankly, this is highly unlikely with companies such as Amazon and Microsoft playing in the same market.
Funded in 2009:
... after the VC financing rounds, where they burned all the cash;
... after the IPO where again all cash also burned in about one year or less;
... now having loaned another $500M (that's five-hundred-MEEELLION more) last month;
And for a company about to hit $1B revenue...
When exactly do you think profitability should become a topic? Anyone think investors plan is to keep investing forever? For Wall Street, you either have to grow very fast, or be very profitable.... otherwise they'll move to the next big thing. And Nutanix growing continues to slow down (and this is perfectly normal) but on the other hand... profitability does not improve. In 2019 they will celebrate their 10th anniversary! That's ten years BURNING cash. Fortunately... not a cent is mine.
Gartner and the market seem to have a view of Nutanix that goes beyond a simplistic reading of GAPP figures. NTNX have nearly half billion in deferred revenue, billings grow 55% y/y and cash flow is moving in a strong direction.
The figures picked saying NTNX are at risk are selective or wrong. This link is to a perhaps bias article (the author is long on NTNX) but it makes some strong points against doom of some of the posts here.
https://seekingalpha.com/article/4153049-nutanix-beginnings-long-rally
Having worked for a number of companies involved in this space I smell the desperate tactic of slag off the competition when they keep stealing your customers. NPS over 90 year after year with the growth NTNX have had is seriously impressive. That says something,
Yes, he is long and needs more suckers to jump on the train.
I would recommend you sell as soon as your stocks vest.
Here is why, the cratering cash flow is a good indicator that customers and business is being bought with cash. Speculation: Your company discounts way below profitability and books the minus in sales&marketing as expenses of acquiring customers and revenue. This happens under the assumption that existing customers are going to generate follow up revenue and that it is much cheaper to sell to an existing customer than a new one (which is true). There is plenty of easy cash sloshing around, so this will go on for a while.
Here lies the crux, your price/benefit ratio has to be aligned with the market and currently it is not. Nutanix is $20-25k per node. Plus Calm, plus Xi, plus Turbo.
VxRail is $8k with VSOM/vCloud (which are years ahead of Calm).
HyperFlex is $8k with Iaas/CC (which are also years ahead).
In both cases way more R&D and WAY more acquisitions than your R&D budget. Plus gigantic adjacent business unit that help with products and integration.
This whole theater will continue until the next IDC report where Nutanix will have a strong showing of 30-45% YoY. At the same time Cisco and HPE (yes, HP. You read it here first) will jointly have more marketshare than Nutanix, or be close enough for discomfort.
Your growth is 84% 2016, 72% 2017, but the current quarter yoy is only 55%. Ouch!! What happened? Maybe just a glitch or pushed deals that will rain next quarter? Maybe.
Or HPE and Cisco are charging through your deals like two elephant bulls. They are in many cases "good enough" or even better/faster but definitely A LOT cheaper than you. SimpliVity and HyperFlex are growing 200%+ and show no signs of slowing and are more likely to sustain this momentum as their salesforce finally learns to position the product. It sure does take them a while.
By the end of this year they will arrive at 30% market share with a growth momentum of 100%, Nutanix will be at or below 30% with growth momentum of 30%. That's where the easy money dries up and only one path forward remains:
Stock dilution.
But don't worry, remember that $500m loan? Dheeraj and his buddies pocketed half of that in cash. Exec bonuses, you surely understand. When the till runs dry again they will issue stock, which will fall, and then fall again once it becomes clear what's happening. and your options, RSU, or EPP stock will suddenly be much much less worth.
Still, if you haven't sold by then, do it. It won't get better from there.
All the best, buddy.
"...business is being bought with cash. Speculation: Your company discounts way below profitability and books the minus in sales&marketing..."
...and here we have it:
"What is Nutanix's new customer rebate incentive?
When you acquire a new customer for Nutanix as a partner, you can earn up to 5 percent additional on that software sale. "
https://crn.com/slide-shows/virtualization/300100256/nutanix-channel-chief-on-new-software-rebates-attracting-dell-partners-with-xc-core-and-attacking-white-space.htm/pgno/0/3
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