Pure Storage (PSTG) Up 1.3% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Pure Storage (PSTG). Shares have added about 1.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Pure Storage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Pure Storage Q4 Earnings Beat, Revenues Rise Y/Y
Pure Storage reported non-GAAP earnings of 53 cents per share in fourth-quarter fiscal 2023, which beat the Zacks Consensus Estimate by 35.9% and increased 47% on a year-over-year basis.
Total revenues increased 14% from the year-ago reported quarter to $810.2 million. However, the top line missed the Zacks Consensus Estimate by 0.1%. Global macroeconomic weakness and cautious IT spending remain concerns.
The company provided muted revenue guidance for fiscal 2024. Amid current macroeconomic weakness and pressured IT spending, Pure Storage expects revenues to grow in the range of mid-to-high single digits on a year-over-year basis. The non-GAAP operating margin is expected to be 15%.
Quarter in Detail
Product revenues (contributing 67% to total revenues) amounted to $545.1 million, up 11% on a year-over-year basis.
Subscription services revenues (33% of total revenues) of $265.1 million rose 23% on a year-over-year basis.
Subscription annual recurring revenues (ARR) amounted to more than $1.1 billion, up 30% on a year-over-year basis. Subscription ARR includes the annualized value of all active subscription contracts as of the last day of the quarter plus annualized on-demand revenues.
Total revenues in the United States and in International moved up 6% and 39% year over year, respectively. The United States revenues were significantly affected by cautious IT spending.
PSTG added more than 490 customers in the reported quarter. The company’s customer base has more than 11,000 customers and represents 58% of Fortune 500 companies.
Margin Highlights
The non-GAAP gross margin expanded 200 basis points (bps) from the year-ago reported quarter to 70.8%.
The non-GAAP Product gross margin expanded 220 bps from the year-ago reported quarter to 69.2%. The non-GAAP Subscription gross margin was 74.2%, which expanded 120 bps on a year-over-year basis.
Non-GAAP operating expenses, as a percentage of total revenues, were 51.3% compared with 52% reported in the prior-year quarter.
Pure Storage reported a non-GAAP operating income of $158.6 million compared with $118.7 million reported in the year-ago quarter. The non-GAAP operating margin was 19.6% compared with 16.8% reported in the prior-year quarter.
Balance Sheet & Cash Flow
Pure Storage exited the fiscal year ended Feb 6, with cash and cash equivalents and marketable securities of $1.6 billion compared with $1.5 billion as of Nov 6.
Cash flow from operations amounted to $233 million in the fiscal fourth quarter compared with $138.2 million reported in the prior-year quarter. Free cash flow was $172.8 million compared with $117.2 million reported in the previous-year quarter.
In the fiscal fourth quarter, the company returned $67.5 million to shareholders by repurchasing 2.4 million shares. For fiscal 2023, PSTG returned $219 million to shareholders by repurchasing 7.8 million shares. The company authorized an incremental $250 million share-repurchase plan.
Deferred revenues increased 28.3% to $1.386 billion in the quarter under review.
The remaining performance obligations at the end of fiscal fourth quarter totaled $1.753 billion, up 24% year over year. The metric represents total committed non-cancellable future revenues.
Guidance
Excluding the seasonality impact to product revenues of $60 million, Pure Storage expects revenues to be $560 million for first-quarter fiscal 2024, unchanged from the year-ago reported figure.
The non-GAAP operating income for fiscal first quarter is expected to be $10 million. The operating income will be affected by increasing investment for the company’s first in person Sales Kick Off event after the pandemic and higher costs due to planned hiring in second half of last fiscal.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -188.87% due to these changes.
VGM Scores
At this time, Pure Storage has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Pure Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Pure Storage, Inc. (PSTG) : Free Stock Analysis Report
