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Analysts Weigh In On VMware Earnings, Buyout Deals

Wayne Duggan

VMware, Inc. (NYSE: VMW) shares tumbled on Friday after the company reported a mostly in-line second quarter and announced two big acquisitions.

In addition to the highly-anticipated $2.7 billion deal for Pivotal Software Inc (NYSE: PVTL), VMware also took the market by surprise by announcing a $2.1 billion acquisition of security software company Carbon Black Inc (NASDAQ: CBLK), which had been the subject of buyout rumors for weeks.

Several analysts have weighed in on VMWare following its earnings report and news of its spending spree. Here’s a sampling of what they’ve had to say.

Deals Overshadow Solid Quarter

Wedbush analyst Daniel Ives said both of the acquisitions make sense for VMWare and should ultimately increase the company’s SaaS and hybrid cloud subscriptions by more than $3 billion.

“For FY2Q, VMW reported a solid quarter that featured growth in all 3 geographic categories with total revenue growing 12% y/y but will be overshadowed by the license revenue outlook for the remainder of the year/FY3Q20 which was ~$50 million below the Street,” Ives wrote in a note.

BMO Capital Markets analyst Keith Bachman said the buyout deals overshadowed what was otherwise a solid quarter.

“We had previewed that we thought the quarter would be in line and we think the Q was a bit better than we had anticipated,” Bachman wrote.

Acquisitions Make Sense

Raymond James analyst Michael Turits said VMWare is reporting and guiding for some impressive growth numbers given the difficult backdrop, and it’s buyout deals make financial sense.

View more earnings on VMW

“While these are large, but not transformative deals, they are logically incremental to VMWare's container/appdev and security strategies respectively and were made at reasonable valuations,” Turits wrote.

KeyBanc analyst Alex Kurtz said VMWare’s surprise buyout deals and management’s updated long-term strategy may create some uncertainty among investors about whether or not the company is best using its funds.

“Our key takeaway from the two acquisitions is VMware's intent to modernize and better secure the Company's core franchise in compute (vSphere),” Kurtz wrote.

Ratings And Price Targets

  • Wedbush has an Outperform rating and $210 target.
  • BMO has an Outperform rating and $160 target.
  • Raymond James has an Outperform rating and $185 target.
  • KeyBanc has an Overweight rating and $182 target.

VMware shares traded lower by 7.1% to $137.56 at time of publication.

Related Links:

VMware Will Acquire Pivotal Software And Carbon Black

What To Make Of The Splunk Sell-Off: Analysts Weigh In

Latest Ratings for VMW

Date Firm Action From To
Aug 2019 Maintains Neutral
Aug 2019 Maintains Buy
Aug 2019 Maintains Outperform

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