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VMware (VMW) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

VMware VMW is set to release third-quarter fiscal 2020 results on Nov 26.

For the quarter, the company anticipates revenues of $2.405 billion, up 9.3% year over year.

The Zacks Consensus Estimate for revenues currently stands at $2.40 billion, indicating 9.2% growth from the figure reported in the year-ago quarter.

VMware projects non-GAAP earnings of $1.42 per share. The consensus mark for earnings is in line with management’s guidance and has been steady over the past 30 days. However, the figure implies a 9% decline year over year.

The company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 4.3%.

VMware, Inc. Price and EPS Surprise

VMware, Inc. Price and EPS Surprise
VMware, Inc. Price and EPS Surprise

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


Let’s see how things are shaping up for this announcement.

Factors to Consider

VMware is benefiting from continued enterprise deal wins. The company closed 16 deals worth more than $10 million in second-quarter fiscal 2020. The trend most likely continued in the to-be-reported quarter owing to an expanded portfolio.

The company added new features to the VMware Cloud Provider Platform that enables cloud providers to deliver industrialized hybrid clouds to customers from any location, including customer data centers, cloud provider data centers, VMware Cloud on AWS as a managed service and hyperscale public clouds. This is expected to have expanded clientele in the to-be-reported quarter.

Moreover, the company’s dominance in the software-defined data center (SDDC) space along with the expanding customer base in cloud, driven by partnerships with the likes of International Business Machines IBM, Amazon’s AMZN cloud computing arm Amazon Web Services (AWS), Microsoft and Alibaba, is a positive.

VMware and AWS have expanded their partnership that now enables the latter to resell VMware Cloud on the platform. Notably, VMware Cloud on AWS is now available in 16 AWS regions globally.

Per VMware, since August 2018, VMware Cloud on AWS customers are up four times. The solid demand for the solution is expected to have aided the top line in the to-be-reported quarter.

VMware’s NSX solution also witnessed significant adoption, owing to a strong demand for automation and cloud-native workloads for SD-WAN. This is expected to have driven the top line.

Further, strong End-User Computing (EUC) license bookings, driven by Workspace ONE, are expected to have positively impacted the top line.

Moreover, acquisitions are playing a key role in driving VMware’s top line. In the last reported quarter, the company completed the acquisitions of Avi Networks, Bitfusion, Uhana and Veriflow. Additionally, it announced the buyout of Pivotal.

VMware also completed the acquisition of Carbon Black in the to-be-reported quarter.

Key Q3 Developments

Notably, during the third quarter, VMware added management, security and multi-cloud VDI innovation to the Workspace ONE platform.

Additionally, Workspace ONE Intelligent Hub now includes a virtual assistant, powered by IBM Watson Assistant. Users can interact with the platform by using natural language processing (NLP) or text. VMware noted that Workspace ONE is the first digital workspace platform to integrate an AI-powered virtual assistant.

On Aug 26, VMware unveiled a new portfolio of products and services to transform the way enterprises build, run and manage software on Kubernetes called VMware Tanzu.

Moreover, NVIDIA NVDA and VMware inked a partnership to deliver accelerated GPU services to VMware Cloud on AWS. The partnership will help customers of VMware Cloud on AWS gain access to a new, highly scalable and secure cloud service, consisting of Amazon EC2 bare metal instances, which will be supported by NVIDIA T4 GPUs and the new NVIDIA Virtual Compute Server software.

Zacks Rank

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

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