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VMware Rises After The Release of 3rd-Quarter Results

Shares of VMware Inc (VMW) traded higher, 0.68%, to a price of $166.02 per unit in after-hours trading on Tuesday after the Californian computer software company topped Wall Street analysts on revenue and adjusted earnings for the third quarter of the fiscal year 2020.

Adjusted earnings per diluted share of $1.49 was down 4% year over year but exceeded consensus estimates by 6 cents.

Total revenue came in at $2.46 billion surpassing expectations by $50 million. The top line increased nearly 12% from the prior-year quarter.

By segment, license revenue grew 10.2% to $974 million and services revenue rose 12.6% to $1.48 billion.

More relevant year over year changes in third-quarter results were a 5.3% rise in operating cash flows to $810 million and a 6.7% gain in free cash flows to $760 million. The company didn't distribute dividends in the quarter but it repurchased shares of its own common stock spending $242 million. In contrast with both cash flow increases, the adjusted operating income margin of 30.9% of total revenue marked a significant decline of 280 basis points.

In a statement, CEO Pat Gelsinger commented on VMware's third-quarter results:

"Q3 was another solid quarter for VMware, and we're pleased with our results. We continue to see traction and customer momentum in support of VMware's vision to deliver a software architecture that enables any app, on any cloud, delivered to any device. We are thrilled to welcome Carbon Black to the VMware family, and we remain on track to close the acquisition of Pivotal by the end of the fiscal year. Customers globally have resoundingly affirmed that both acquisitions will offer tremendous value as we help them with their digital transformations."

The acquisition of Carbon Black Inc (CBLK), which is a company leader in the development of cloud-native security software solutions, was completed on Oct. 8 earlier this year.

Pivotal Software Inc (PVTL), is a San Francisco based provider of a cloud-native application platform and related services to its US clients. The platform enables the clients of Pivotal Software to expedite and simplify the development of computer software.

Moreover, together with Oracle, the company will provide technical support to customers in the development of hybrid cloud strategies.

The balance sheet had $2.03 billion in cash on hand and short-term investments as of Nov. 1, 2019. It had total debt and other borrowings of $4.58 billion and total unearned revenue of $7.89 billion. The total equity was worth $5.81 billion.

The stock traded at around $164.90 price per share at close on Tuesday for a market capitalization of about $67.38 billion. Year to date the share price increased 20% to place above the 120-, 70- and 30-day simple moving average lines.

The 52-week range is $128.69 to $206.80.

The 14-day relative strength index of 53 indicates the stock is neither oversold nor overbought.

Wall Street issued an overweight recommendation rating for shares of VMware Inc and an average target share price of $176.96 reflecting 7.3% upside to hit within a year.

Disclosure: I have no position in any securities mentioned.

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This article first appeared on GuruFocus.