Nutanix Stock Forecast: Private Cloud Rains Profits - Financhill

Nutanix Stock Forecast: Private Cloud Rains Profits

Nutanix Stock Forecast: The transition to cloud computing has given individuals and businesses the power to get more from their IT resources. The cloud brings increased efficiency, while simultaneously decreasing the time and money needed to implement and maintain IT infrastructure.

Cloud computing delivers services through the internet, eliminating the need to purchase, house, and maintain complex hardware and software. Best of all, in-house datacenters are a thing of the past, saving on the expense that comes with managing endless racks of servers.

Companies leading the cloud computing revolution are in an excellent position for growth in coming years. For investors, the question is whether Nutanix will be one of them.

Understanding the Cloud

The menu of services available through the internet “cloud” is expanding daily, and includes everything from servers, databases, and storage to software, networking, and analytics.

These systems can adapt to changing conditions real-time, increasing efficiency and agility. They are easy to scale as businesses grow, and most importantly, cloud clients only pay for the specific services they use.

There are three options for cloud computing. Public clouds, private clouds, and hybrid versions.

Public clouds are developed and managed by a third party, and users create an account that is accessed through their web browser. There are dozens of choices, including options operated by companies like Amazon, Microsoft, and Google.

Private clouds are those owned and accessed by a single organization. Some companies use an on-site datacenter for their private cloud, while others leverage a third-party to host the private cloud.

Either way, all of the infrastructure is held within a private network. Hybrid clouds combine the best features of public and private clouds by allowing some public cloud access from an individual organization’s private cloud. This increases opportunities to improve efficiency.

What Does Nutanix Do? 

When Nutanix [NASDAQ: NTNX] had its IPO on September 30, 2016, investors were enthusiastic.

The billion dollar start-up had all the hallmarks of a company poised for strong growth. Its value proposition of simplifying cloud computing while bringing costs down was appealing enough to attract a number of top-tier clients, including federal government agencies, financial services providers, and industry leaders like Best Buy, Honda, and eBay.

In a nutshell, Nutanix [NASDAQ: NTNX] has developed cutting edge solutions for businesses making the transition to cloud computing.

Using hyperconverged infrastructure (HCI) technology, Nutanix offers comprehensive, 100 percent software-defined stacks capable of powering business applications at any scale.

Nutanix technology integrates all related tasks, including computing, virtualization, storage, networking, and security. The integration of Nutanix software with cloud services unifies the client’s IT operations, ensuring seamless application mobility across cloud environments.

Through the use of Nutanix technology, IT professionals can manage enterprise datacenter infrastructure, clouds, and applications on a simple dashboard. The Nutanix system automates completion of complex tasks. The Nutanix cloud is a hybrid, ensuring clients get the best features of both public and private clouds.

Nutanix [NASDAQ: NTNX] promises big benefits for businesses who implement Nutanix solutions. Have those promises translated into profits for shareholders? And if so, will the company continue to deliver?

A Rocky Start to 2019 

Nutanix [NASDAQ: NTNX] made a significant change in strategy at the end of 2017. It determined that the future of computing is not in hardware, but in SaaS software.

Unfortunately, 2018 brought a number of missteps in execution. This led to a substantial decrease in revenue for the first half of 2019.

The change to SaaS means clients are moving to cloud-based software delivery, which requires a subscription rather than an upfront purchase. For Nutanix, that means a big change in revenue. Clients aren’t paying for product up-front. Instead, payments come in over the course of long-term contracts.

Investors and analysts expected revenues to drop temporarily during this transition, but no one was prepared for the size and scope of the decline.

The first half of 2019 was, at best, disappointing. By the beginning of August, the company’s stock price had dropped 40 percent for the year. When fiscal third quarter revenues were announced, some shareholders were ready to jump ship.

Close examination of the root cause determined that Nutanix [NASDAQ: NTNX] had not invested enough in lead generation. While subscription sales grew robustly, the growth wasn’t enough to offset revenue lost in the move away from hardware sales.

However, by the time fiscal third quarter results were announced, Nutanix leaders were confident the problem had been resolved. Quarterly revenue from subscriptions had increased 24 percent year over year, and overall subscription revenue was up by 110 percent. Better still, deferred revenue went up by 55 percent year over year.

Many analysts decided that these signs pointed to a company capable of bouncing back. But did the risk pay off for investors? And is Nutanix stock a buy today?

Is Nutanix a Buy? 

After a disappointing start to 2019, Nutanix seems to have reversed the trend.

The company’s most recent earnings report offered results that exceeded expectations, and guidance for the fiscal first quarter is stronger than analysts had predicted it would be.

The lead generation issue appears to be resolved, as the company’s backlog increased more than 150 percent over the preceding quarter.

Year over year, deferred revenue was up by 44 percent at $910 million – an encouraging sign that customers are getting on-board with Nutanix’s new product line.

Certainly, the turnaround isn’t quite complete. It will be several quarters before the backlog becomes revenue. However, most analysts agree that the crisis apparent in previous quarters has been resolved.

In short, Nutanix may still be down 50 percent from its 2018 peak, but it appears that the company is on its way back up. That means opportunity for investors, who may profit by purchasing at today’s prices.


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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.