NTNX - Nutanix - Company Profile

Nutanix, Inc. develops and provides an enterprise cloud operating system software. It offers enterprise applications, virtual desktop infrastructure, virtualization and cloud, big data, remote and branch office IT, and data protection and disaster recovery solutions; and hardware platforms and software options; and support and services. The company's products include Acropolis, a hyperconverged infrastructure solution to run any application; Prism, an infrastructure management solution with one-click operations; Nutanix Calm, an application-centric IT automation solution; Xi cloud services; Nutanix Xpress that eliminates the need for clunky SANs, expensive hypervisor licensing, and complex data protection and management software; and tools and technologies. It serves education, energy and utilities, financial services, healthcare, retail, and service provider industries, as well as state and local government, and the United States federal government. Nutanix, Inc. was founded in 2009 and is headquartered in San Jose, California. Company description from FinViz.com.

The company reported a loss of 11 cents for Q2 compared to estimates for a loss of 22 cents. Revenue of $303.7 million rose 20% and beat estimates for $298.6 million. The problem came with the guidance. They expect a loss of 26-28 cents on revenue of $295-$310 million. Analysts were expecting a loss of 23 cents on $309 million. Shares had been near the recent highs and crashed back $13 to $50.

Nutanix is shifting from a hardware sales model at zero margins in order to get their software installed on a subscription basis to a software only model and exiting the hardware business. They can do this because they are over the consumer acceptance stage. They no longer have to "buy" accounts with sweetheart hardware deals. The evolution out of the hardware space is a drag on revenue but revenue at zero margins is not a plus. Getting out of the high revenue low margin business is a plus but it means the revenue numbers will be a challenge for the first year.

Multiple analysts came out in support of Nutanix saying the new long-term subscription offerings should trump the additional capex spending. Raymond James said they anticipate growth acceleration driven by new opportunities in multi-cloud as well as new products. RJ upped their price target from $64 to $74 and the stock is at $50. JMP Securities said the shares are undervalued and the higher capex and sales and marketing expenses were "prudent" due to the large market opportunity.

Stifel remained positive with a $64 target saying "We believe Nutanix will sustain strong double digit software growth in coming years given its expanding product set."

What was not shown in the bare earnings numbers was the 66% YoY growth in software and support billings and 49% YoY growth in software and support revenue. They also generated 78% adjusted gross margin in the shift to a Software-Defined business. Billings rose 37% to $395.1 million. Cash on hand rose 168% to $934.3 million.

They added more than 1,000 customers in the quarter to put their base over 10,000 and they signed their largest deal in history for more than $20 million.

For the current quarter they guided for revenue growth of 40-45% and billings growth of 50-55% with adjusted margins of 78-79%.

Any company would move the sun and moon to have those kinds of revenue and margin projections. This is why we need to buy Nutanix on the selloff.

Buy Jan 2020 $55 Call, currently $11.30, no initial stop loss.
Sell short Jan 2020 $75 Call, currently $5.10, no initial stop loss.
Net debit $6.20.