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Why Nutanix Inc. Stock Jumped 46% in the First Half of 2018

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What happened

Stock in Nuxtanix Inc. (NASDAQ: NTNX), a provider of enterprise cloud networking services, rose 46.2% in the first six months of 2018, according to data from S&P Global Market Intelligence.

So what

Nutanix shares have benefited from the company's accelerated revenue growth in recent quarters. A positive earnings report released on March 1, covering the company's fiscal second quarter of 2018, was the primary catalyst for its ascent in the first half of the year:

NTNX Chart
NTNX Chart

NTNX data by YCharts.

In the second quarter (the three months ended Jan. 31, 2018), revenue surged 44% over the prior-year quarter to $286.7 million, while billings expanded by 55% to $355.9 million. In addition, Nutanix more than doubled the number of $1-million-plus deals won during the period against the prior year, to 104 transactions.

Nutanix followed this performance with an equally strong showing in its fiscal third-quarter report, which was released May 24. During the third quarter, the company's top line gained 41% to $289.4 million, and billings continued to exhibit strength, rising 50%.

As I explained in a recap of third-quarter earnings, Nutanix is reaping the rewards of management's decision to decelerate sales of third-party partners' hardware products, in favor of focusing solely on the company's own cloud-based enterprise networking software. This shift has boosted profitability and operating cash flow. Gross margin improved by nearly 750 basis points in the third quarter to 67%, helping to propel operating cash flow in the first nine months of the fiscal year to $69.8 million, versus just $7.9 million in the third quarter of 2017.

Cloud computing concept: wall of computer-generated images stretching to infinity.
Cloud computing concept: wall of computer-generated images stretching to infinity.

Image source: Getty Images.

Now what

Looking forward to the final quarter of the fiscal year, shareholders will anticipate continued double-digit gains in revenue and billings. In addition, investors will seek updates from management on the company's next generation of cloud-based products like Era, Beam, and Flow, three recently launched software offerings that handle database snapshots, cloud spend monitoring, and cloud application-based security, respectively.

These products are representative of Nutanix's software-only solutions approach, and each operates under the company's "one-click" philosophy of application simplicity. Nutanix is expected to report earnings next on Aug. 30.

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool recommends Nutanix. The Motley Fool has a disclosure policy.