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Nutanix (NTNX) to Post Q3 Earnings: What's in the Offing?

Zacks Equity Research

Nutanix Inc. NTNX is scheduled to release third-quarter fiscal 2019 earnings on May 30.

Notably, the company beat the Zacks Consensus Estimate in three of the trailing four quarters and missed it once, the average positive surprise being 26.21%.

In the last reported quarter, revenues increased 17% from the year-earlier quarter to $335.4 million and beat the Zacks Consensus Estimate of $331 million. The upside can be attributed to large deal wins and a steady shift to a subscription-based business model. Strong performance in the EMEA region also contributed to the improvement.

What to Expect in Q3

For the fiscal third quarter, revenues are projected between $290 million and $300 million. The Zacks Consensus Estimate for revenues is pegged at $296.48 million.

Nutanix anticipates billings in the range of $360-$370 million.

Non-GAAP gross margin is predicted between 75% and 76%. Moreover, management forecasts operating expenses in the $330-$340 million band.

Nutanix estimates non-GAAP loss per share to be 60 cents, in line with the Zacks Consensus Estimate.

Let’s take a look at the factors that are likely to make an impact in the upcoming quarterly announcement.

Factors to Consider

Nutanix is benefiting from growth in the Software and support business. The company is optimistic about its transition to software-based revenues as the same is likely to boost margins in the to-be-reported quarter.

The company continues to benefit from deal wins on the back of consistent execution in product, customer support and enterprise selling, which also led to a deeper penetration among existing customers. This is expected to boost the top line in the quarter to be reported.

The company continues to witness a strong adoption of its products. This trend is likely to continue to aid Nutanix’s performance in the fiscal third quarter. Products like Nutanix Beam, Era and Flow are expected to help customers better manage their hybrid cloud environment. Increasing AHV (Acropolis Hypervisor Virtualization) adoption rate is expected to boost the top line.

The company is already gaining from the shifting in its business model to a subscription-based one. We believe that the transition of its non-portable software sales to a recurring subscription-based licensing model is likely to fuel the upcoming quarterly results.

Moreover, in its last earnings call, management had hinted that it is expects recurring subscription business to contribute 70-75% to total billings in the next three to five quarters, which includes the fiscal third fiscal quarter. Subscription billings had contributed 57% to total billings in the fiscal second quarter, up from 51% in the first quarter.

However, Nutanix expects a significant impact on third-quarter fiscal 2019 results from imbalance and lead generation spending coupled with a slower-than-expected sales hiring.

However, changes in the pass-through hardware mix are likely to be reflected in the soon-to-be-reported quarter and thereafter for about a year.

Intense competition from the likes of Cisco CSCO and Hewlett Packard Enterprise HPE that offer integrated systems; and traditional storage array vendors such as NetApp NTAP; is a concern.

Nutanix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nutanix Inc. Price and EPS Surprise

Nutanix Inc. Price and EPS Surprise

Nutanix Inc. price-eps-surprise | Nutanix Inc. Quote


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