5 Reasons Why Nutanix Stock Is Soaring

From new focus on hyperscale public cloud provides like AWS to transition from hardware to software and services, here are five reasons why Nutanix stock is spiking today.

Why Nutanix Stock Is Up After Flat Revenue Growth

Nutanix’s stock is surging after the hybrid cloud software and services specialist reported a solid first fiscal quarter Monday night. The San Jose, Calif.-based company’s stock climbed upwards of 21 percent in after-hours trading and now sits at $33.60 per share as of Tuesday afternoon, up from $28.75 per share at the market close on Monday.

What’s interesting is Nutanix’s stock spike came after the company reported basically flat revenue year-over-year growth of $315 million during its first fiscal quarter, which ended Oct. 31, 2019, as well as a GAAP net loss of $229 million.

Here are the five reasons why investors are betting on the hyperconverged infrastructure pioneer.

Successful Transition To Software And Subscriptions

It’s now official. Nutanix has successfully transitioned from a hyperconverged infrastructure appliance company into a true software and subscriptions titan over the span of approximately two years.

Hardware revenue accounted for only $9.7 million in the quarter, representing only 3 percent of Nutanix’s overall sales. During the same quarter one year ago, Nutanix generated $32.5 million in hardware revenue, representing more than 10 percent of overall sales.

Nutanix reported software and support sales reaching $305 million, up 9 percent year over year in the first quarter of 2020. The company also saw deferred revenue skyrocket nearly 40 percent year over year to $975 million in its first quarter. Subscription billings now account for 73 percent of total billings while subscription revenue accounts for 69 percent of total revenue.

Investors care more about revenue stemming from software and subscriptions compared to hardware sales, which is a key reason why Nutanix stock soared on flat year over year total revenues. Nutanix also gave a positive software and support revenue guidance of between $330 million and $335 million for its current second fiscal quarter.

Focus On Hyperscale Public Cloud Providers

In the past 18 months, Nutanix has begun focusing on running its software in hyperscale public cloud environments which was not even on the company’s radar a few years ago. Nutanix is looking to expand its presence in this market, according to Pandey. Hyperscale cloud providers like AWS, Google and Microsoft are spending billions each quarter on building and equipping new data centers.

“On the topic of hyperscaler platforms, we announced Nutanix clusters earlier this year to enable our software to run in public cloud data centers. Our approach to multi-cloud is architecturally different,” said Pandey. “So, as we go and really expand the surface area for software, we get into other battlegrounds that we hadn't thought about before.”

Pandey said he’s looking at Amazon’s highly anticipated AWS Outposts on-premise architecture as another inroad to expand Nutanix’s software market presence.

“I think, AWS definitely wants their hardware Outposts to really run our software,” said Pandey. “So, we hope to actually do a lot of that stuff in a way that is reliable and stable. One of the things that people don't know about us is how we tested the heck out of the flash drives coming out of the platform vendors and now our test suite is the industry standard. And we've kept failing many of the very large SSD providers because of our rigor. So, we want to apply very similar rigor when it comes to these platforms coming out from hyperscalers as well.”

HPE Partnership Driving Growth

One key area of brand new growth came from Nutanix’s new partnership with Hewlett Packard Enterprise around hyperconverged infrastructure and HPE’s GreenLake’s consumption-based pay-per-use offering. The new HPE ProLiant DX solution with Nutanix software and hypervisor creates a turnkey solution aiming to accelerate enterprises adoption of modernized data center architectures.

“We’re pleased to see our new relationship with HPE start to blossom. This being the first quarter since the integrated products, HPE’s huge customer base can now easily adopt Nutanix,” said Pandey. “As a result, we saw a number of new customer wins in these solutions during the quarter. In the first quarter, more than half of our HPE customers were also new logos to Nutanix, validating this new partnership and our software increased exposure to HPE’s install base.”

Pandey said the HPE partnership is resonating “faster than any of our past OEM partnerships.” The CEO said Nutanix and HPE won a nearly $2 million deal in the first quarter with a new large EMEA-based insurance company. “Early success is compelling this customer to already explore our Database-as-a-Service use case with Nutanix Era,” he said.

Customers Buying More Product Lines, Larger Deals

One crucial stat hidden in Nutanix earnings report on Monday was the increase in deals outside the company’s core hyperconverged offerings. Approximately 28 percent of all deals during the quarter included at least one product outside the company’s core offering. Nutanix has been on an innovation tear this year launching new offerings such as Xi Leap for Disaster Recovery-as-a-Service and Xi Frame for desktop-as-a-service.

“Our newer products continued to gain traction in the market. In fact, this holistic approach of a hybrid cloud stack is often a critical reason why we win deals,” said Pandey. “Our software and services portfolio now covers the trifecta of data plane, control plane and management plane.”

Additionally, Nutanix closed a record number of deals – 66 total -- worth more than $1 million in the first quarter. “It was a strong quarter for us based on better-than-expected financial results, progress in subscription, record large deals, as well as continued new product traction,” he said.

Hyperconverged Market Is Now Driven By Software

Founded in 2009, Nutanix was critical to jumpstarting the hyperconverged infrastructure (HCI) market years ago. However, Nutanix CEO Dheeraj Pandey said HCI is now being driven by operating system (OS) innovation compared to infrastructure innovation.

“It was a battle that we had to win over the last three, four years and I think the dust has finally settled that it's really an operating system play,” said Pandey.

On the competition front, the CEO said competitive pressure used to come from converged infrastructure players and large incumbents in the space of storage and networking’s such as Cisco and Dell.

“Now, it just happens to be two of us -- VMware and us -- and we are talking about how do we navigate this multi-cloud environment over the next five years and we think they have different approaches,” said Pandey. “I think hyperconvergence as a magic quadrant is really driven by software now as opposed to hardware.”