Nutanix Earnings Preview: Watch out for outlook updates

Nutanix (NASDAQ: NTNX) is scheduled to report its third-quarter results after the bell on May 30. The cloud provider’s stock nosedived 34% on March 1st after the company reported weak third-quarter guidance. The share price touched a new 52-week low of $32.52 on March 3. However, Nutanix has pared some losses with the stock down about 16% in 2019.

Muted Q3 Expectations

Last quarter, Nutanix provided a muted outlook for the third quarter. The company had blamed on the lower spending on the marketing front and hiring issues on the sales team as the primary factors. Since these are expected to be one-off cases, investors would be hoping for better guidance for the fourth quarter.

The company had guided revenue in the range of $290-300 million and adjusted net loss per share of $0.60. Billings are expected to be between $360-370 million. Post the weak outlook from the firm, analysts have scaled down their expectations.

The top line is now expected to grow modestly to $297.22 million and adjusted loss per share is expected at $0.60, in line with the company’s guidance. Adjusted operating expenses are forecasted to come in the range of $330-340 million by Nutanix.

Key Metrics to Watch

Nutanix is shifting towards cloud-based offering from the on-premise model. The transition is expected to bear fruit in the long-term with sustainable revenues from subscription from its clients. In addition to bringing new customers on board, the move towards the subscription model would help the firm to cross-sell and upsell more services to its existing client base.

Due to the shift towards the software-only model, the company needs to invest across the value chain to address clients’ needs for adopting the cloud-based model.

This process is expected to hurt earnings in the short-term, however over a period of time one would expect the costs getting recouped and paving the way to move towards profitability. Hence, watch out for software and subscription revenues growth on Thursday.

Look out for deferred revenues depicting how the subscription revenues are going to come in the near future as more clients are brought under the ambit of the software-only subscription model. Investors would also be interested in knowing new customer additions in the Q3 period.

Q2 Performance

Revenue rose 16.9% to $335.3 million and adjusted loss per share widened to $0.23 from loss of $0.14 per share reported last year. Software and support revenues increased 42% while software and support billings grew 37%.

Thanks to the ongoing transition, subscription revenues surged 112% and 57% of billings came from subscriptions. Nutanix total customer count stood at 12,410, up 3,540 clients over last year. It added 920 new customers in the second quarter.

Bottom Line

When CEO Dheeraj Pandey and team meet analysts on Thursday, investors would be looking to get more insights on the outlook for the next quarter and fiscal year. If the company fixes its one-off issues faced last quarter, it would be back to the growth trajectory.

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