Nutanix (NTNX): Strong demand for hyperconverged solutions to be a tailwind going forward

The COVID-19 pandemic has accelerated the digital transformation of many businesses in general. Companies have increased their investments in improving their digital infrastructure in order to support the transition to remote work and other such changes that are happening in the business world.

Nutanix Inc. (NASDAQ: NTNX) has seen its stock gain over 35% in the past three months and 14% over the past one month. The company reported better-than-expected results for the first quarter of 2021 a day ago and remains optimistic about the year ahead.

Quarterly trends

Nutanix saw growth in its core software as well as increased adoption of its new products during the first quarter. Annual contract value (ACV) billings rose 10% year-over-year to nearly $138 million. ACV for new products grew 87% year-over-year. The company saw consistent demand for its solutions across all its geographies and verticals.

As part of its strategy to increase its capabilities in hybrid cloud infrastructure (HCI), Nutanix has collaborated with two major companies. The company rolled out its solutions on AWS in August and also entered into a partnership with Microsoft (NASDAQ: MSFT) to roll out its products on Azure. These deals are expected to give the company a significant edge over competition in hybrid computing.

Outlook

Nutanix expects to see further growth in HCI as new products are expected to help address issues that could not be done earlier with the core solution alone. ACV growth is expected to benefit from flexibility in subscription options which presents another opportunity.

On its quarterly conference call, Nutanix said that according to Gartner’s predictions, 80% of organizations will be using hyperconverged solutions by 2025, doubling from 40% in 2020. The company has seen IT spending stay stable despite the pandemic as companies give priority to modernization in private and public clouds, hands-free automation, remote work, and business continuity projects.

The company stated that across 3,400 IT professionals around the world, 46% increased their hybrid investment due to the pandemic. Substantial infrastructure changes are expected to take place across the IT industry worldwide and hybrid cloud deployments are estimated to rise by 37 percentage points over the next five years.

For the second quarter of 2021, Nutanix expects ACV billings to range between $145-148 million. The year-over-year growth rate of ACV is expected to be substantially higher. The company expects to see some seasonality in the third quarter which could cause a slight decrease in ACV on a sequential basis. Based on the Q2 ACV billings guidance, the company expects run rate ACV to grow around 25% year-over-year.

Click here to read the full transcript of Nutanix Q1 2021 earnings conference call