VMware Growth In SaaS, Subscription Sales Lead Revenue Surge

Subscription and SaaS revenue for the quarter was up 22 percent year over year, reaching $943 million. That made up 28 percent of the company’s overall revenue.

Analysts and partners feared that when VMware and Broadcom entered into acquisition talks, the software company’s biggest buyers would pause before signing enterprise license agreements, taking a wait-and-see approach.

VMware beat those expectations Thursday, posting growth in overall revenue as well as in the particularly sought-after areas of SaaS and subscription sales.

“We are pleased with our performance in Q2,” VMware CEO Raghu Raghuram (pictured) said in a statement Thursday. “Our momentum continues next week at VMware Explore where we will showcase new innovative offerings while also highlighting how we are helping customers continue to transform their business. We remain committed to helping organizations unlock the power of multi-cloud.”

[RELATED: VMware Pursuit Brings Broadcom’s ‘Illegal’ Past Into Focus]

VMware did not host an analyst call but instead posted its results as a U.S. Securities and Exchange Commission filing and a press release.

Overall revenue for the second quarter was $3.34 billion, up 6 percent year over year. Subscription and SaaS revenue for the quarter was also up 22 percent year over year, reaching $943 million. That made up 28 percent of the company’s overall revenue. In the last 12 months VMware has grown subscription and SaaS revenue by $176 million and increased that category’s contribution to overall revenue by 4 percent.

Broadcom said in its first call discussing the acquisition of VMware that it wanted to increase subscription dollars by converting the company’s legacy software agreements.

“From an economics point of view, whether it’s perpetual or subscription, frankly, it’s the same. But we want to make it very consistent with the way we run the model. Based on this we are, in a sense, restructuring the contracts from perpetual to subscription,” Broadcom CEO Hock Tan said during a May 26 call with media and analysts. “That’s why, depending on where you see it, you’ll see a slower growth at the beginning—if any—followed by a more rapid growth as we convert more to subscription.”

During that call, Tan said he too—like analysts and partners—expected to see VMware’s sales slow in the short term as a result.

Prior to yesterday’s earning announcement, investment firm Monness, Crespi, Hardt correctly predicted that VMware’s subscription revenue would rise 22 percent. However, it also stated licensing revenue would fall 17 percent. Instead, VMware’s revenue as a result of licenses rose 7.8 percent to $796 million.

The company recently announced changes to its Partner Connect program to incentivize more partners to sell subscription and SaaS deals, VMware’s Tracy Ann-Palmer, vice president of partner experience, said.

“We’re very confident that we’re doing the right things for our partners. I think no one knows what is going to happen with the acquisition. It may not happen at all,” she told CRN. “Our stance going forward is we are still an independent company. We’re going to continue on our commitments and priorities and execute as we planned.”