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VMware (VMW) Q4 Earnings Lag Estimates, Revenues Rise Y/Y

Zacks Equity Research

VMware Inc.’s VMW fourth-quarter fiscal 2020 non-GAAP earnings of $2.05 per share missed the Zacks Consensus Estimate by 5.1% but increased 9.6% year over year.

Revenues of $3.07 billion surpassed the consensus mark by 4.3% and also improved 11.4% on a year-over-year basis.

Strong top-line growth was primarily driven by robust performances in NSX and vSAN product lines. Management stated that it inked 31 deals in the quarter worth more than $10 million.

Region-wise, U.S. revenues (51.1% of revenues) increased 11.4% to $1.57 billion. International revenues (48.9%) grew 1.7% from the year-ago quarter to $1.50 billion.

Services revenues (46.8% of total revenues) rose 9.6% to $1.44 billion. License revenues (33.6%) inched up 0.7% year over year to $1.03 billion.

Subscription and SaaS revenues (18.1% of total revenues) jumped 51.5% year over year to $556 million.
 

VMware, Inc. Price, Consensus and EPS Surprise

VMware, Inc. Price, Consensus and EPS Surprise

VMware, Inc. price-consensus-eps-surprise-chart | VMware, Inc. Quote

 

Robust Bookings

The company announced that six of its top 10 customers purchased the entire VMware Cloud Foundation stack in the reported quarter.

NSX adoption was impressive as product bookings (includes Subscription and SaaS, and license bookings, equivalent to license bookings as stated in prior periods) increased more than 20% year over year. Notably, all the top 10 deals in the quarter included NSX.

Furthermore, vSAN product bookings (includes Subscription and SaaS, and license bookings, equivalent to license bookings as stated in prior periods) increased in mid-teens year over year. The product was included in all the top 10 deals.

EUC product bookings (includes Subscription and SaaS, and license bookings, equivalent to license bookings as stated in prior periods) were up more than 30% on a year-over-year basis and included in eight of the top 10 deals. Customers continued to increase their SaaS purchases of Workspace ONE. More than two-thirds of EUC product bookings were sold as SaaS in the reported quarter.

Core SDDC product bookings (includes Subscription and SaaS, and license bookings, equivalent to license bookings as stated in prior periods) decreased in the low-single digits year over year. Total core SDDC bookings were flat year over year.

At the end of the quarter, VMware had license backlog of $5 million and total backlog of $18 million.

Notably, remaining performance obligations that capture all of VMware’s committed and non-cancelable future revenues, both billed and unbilled, including future revenues related to its growing hybrid cloud subscription and SaaS businesses were $10.3 billion at the end of the quarter.

Operating Details

Research & development (R&D) expenses as a percentage of revenues slipped 10 basis points (bps) year over year to 17.7%. Moreover, sales & marketing (S&M) expenses as a percentage of revenues decreased 60 bps on a year-over-year basis to 28.7%.

General & administrative (G&A) expenses as a percentage of revenues increased 40 bps to 6.6%.

Non-GAAP operating expenses as a percentage of revenues dipped 30 bps on a year-over-year basis to 52.9%.

Non-GAAP operating margin expanded 20 bps on a year-over-year basis to 34.3% in the reported quarter.

Balance Sheet & Cash Flow

As of Jan 31, 2020, cash & cash equivalents were $2.92 billion compared with $2.03 billion as of Nov 1, 2019.

Operating cash flow was $1.09 billion in the reported quarter while free cash flow was $1.02 billion. In the previous quarter, operating cash flow was $810 million and free cash flow was $760 million.

In the reported quarter, VMware bought back shares worth $55 million. The company has approximately $1 billion remaining under its current share repurchase authorization, which extends through the end of fiscal 2021.

Key Q4 Developments

VMware completed the acquisition of Pivotal on Dec 30, 2019.

The company launched VMware Advanced Security for Cloud Foundation, a new security suite that enables customers to replace legacy security solutions and deliver unified protection across private and public clouds. Product update announcements also included advancements in the VMware Carbon Black Cloud and VMware Secure State.

VMware also unveiled new features across its Telco and Edge Cloud product portfolio, which include telco cloud core, edge and RAN offerings.

Moreover, VMware acquired Nyansa in the reported quarter.

Guidance

For fiscal 2021, VMware now expects revenues of $12.050 billion, suggesting an 11.5% rise from the year-ago reported figure. The Zacks Consensus Estimate for revenues is currently pegged at $11.40 billion, indicating growth of 12.6% from the year-ago reported figure.

Subscription & SaaS and License Revenue are expected to be $5.860 billion, implying a 15.9% increase from the prior-year reported number. More than 40% of these revenues is expected to come from Subscription & SaaS.

Non-GAAP operating margin is anticipated to be 28.8%.

Non-GAAP earnings are expected to be $6.55 per share. The consensus mark for earnings is pegged at $6.99 per share, suggesting growth of 6.4% from the figure reported a year earlier.

Cash flow from operations is expected to be $4.10 billion. Free cash flow is anticipated to be $3.76 billion.

For the fiscal first quarter, total revenues are expected to be $2.73 billion, suggesting 11.4% growth from the year-ago reported figure. The Zacks Consensus Estimate for revenues is pegged at $2.55 billion, indicating growth of 12.4% from the figure reported a year ago.

Subscription & SaaS and License Revenues are expected to be $1.225 billion, hinting at 15.9% growth from the prior-year reported number. More than 45% of these revenues is expected to come from Subscription & SaaS.

Non-GAAP operating margin is anticipated to be 25.1%.

Non-GAAP earnings are expected to be $1.27 per share. The consensus mark for earnings is pegged at $1.40 per share, suggesting growth of 6.1% from the figure reported in the year-ago quarter.

Zacks Rank & Stocks to Consider

Currently, VMware carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Computer and Technology sector are Microsoft MSFT, SAP SE SAP and STMicroelectronics STM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Microsoft, SAP SE and STMicroelectronics is currently pegged at 13.2%, 9.6% and 5%, respectively.


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