California-based cloud giant Nutanix (NASDAQ:NTNX) leads the market with its hyper-converged infrastructure technology. Nutanix’s 100% software-based solutions allow IT teams to create and run powerhouse multi-cloud architectures.
Here’s why private clouds are seizing hyper-converged products: 1) simple deployment model 2) high automation levels. Nutanix burst onto the scene in 2009. Nine years after its founding, the software giant has built a $9.6 billion empire.
The Earnings Round-Up
On August 30, the hyper-converged infrastructure pioneer posted a strong fourth fiscal quarter print. Nutanix unleashed two meaningful beats on earnings and bookings. Consider that Nutanix had hoped to unlock its first $1 billion by the end of its first decade. Nine years in, Nutanix hit $1.16 billion in total revenue for fiscal 2018.
However, the first fiscal quarter outlook for 2019 proved a bit lackluster. Even with an ace quarterly show, Nutanix shares slipped from $60.82 to $56.32 in 24 hours.
An Epic Growth Year for Nutanix
Bigger picture, where does Wall Street stand on this growth titan? After all, Nutanix even with a minor post-earnings fall has still vaulted 57% this year. Year-over-year, the company has set loose an upturn of 165% growth.
We can see that in the last 30 days, Nutanix is racking up analyst recommendations, according to our TipRanks’ Trending Stocks tool. Trending stocks are the ones that have Wall Street analysts buzzing. The names that recently have been rated by 3 or more analysts. When 8 analysts are tuning in, you know this tech stock is one worth watching.
Let’s take a closer look.
Changing the Game
Nutanix CEO Dheeraj Pandey recently spoke with TheStreet and revealed his company is at work to create the next “Uber or Airbnb of the Cloud.”
First, Pandey rewound time, flashing back to a time when Apple (NASDAQ:AAPL) ruled PCs in the ‘90s- and Microsoft (NASDAQ:MSFT) went on to make its own PC rules in “the game.” Suddenly, PCs were no longer hardware-focused, but “about software and about bringing suppliers into the mix.”
Pandey believes, “I think the idea of miniaturizing computing is a timeless thing, and we’ll see cloud being miniaturized as well. That’s where the real wars will be fought.” Nutanix thrives on a “consumer mentality” for motivation, prioritizing a one-two punch of “growth and profitability.”
Looking ahead, Pandey sees cloud computing imitating giants like Uber and Airnb- companies that “don’t own anything, yet they own everything in terms of customer retention.”
Cloud needs to be the same, argues Nutanix’s leader. Pandey sees a monster disruption primed to shake up dispersing: “not just the location of cloud, but also the economics of cloud. Having 1 or 2 vendors just doesn’t cut it; it has to be about software. Once you do that, it creates a level playing field.”
Accelerated Software Evolution
Less than a week ago, Oppenheimer’s Ittai Kidron (Profile & Recommendations) chimed in bullish on Nutanix. The company’s sales and billings were “solid,” and monster deal momentum looks “encouraging.” It’s a quarter where 30% of Nutanix’s bookings stem from new customers.
Another key point for Kidron: “faster-than-expected progress with [Nutanix’s] software transition.” How fast? Software and support now take up a rough lion’s share: 88% of Nutanix’s total revenue. Another positive for the bull- the company’s software transition keeps generating substantial gross margin expansion.
“The transition has gone well and in our opinion strengthened Nutanix’s positioning/value proposition with customers. We continue to believe that Nutanix’s vision and product road-map are differentiated and support a long runway of high growth,” highlights Kidron.
Fresh on the heels of Nutanix’s earnings showcase, the analyst reiterates an Outperform rating on NTNX with a $70 price target. In other words, Kidron believes Nutanix shares stand to fly another almost 24%. The long-term opportunity here cannot be ignored.
For those who are “cautious” on the first quarter revenue guide, Kidron explains “some investment areas take time to show results.” This analyst is unfazed. “We remain buyers,” advises Kidron. Keep in mind, Nutanix’s long-term sales outlook is “unchanged.”
Worthy of note, the analyst is one of the best-performing experts on Wall Street- ranked #36 out of over 4,800 analysts we cover on TipRanks. It’s certainly paid off for Kidron to bet bullish on this cloud player. In his NTNX ratings alone, Kidron realizes an impressive 77.4% in average profits.
Billings Bound to Tap $3 Billion
Merrill Lynch analyst Wamsi Mohan (Profile & Recommendations) also sounds in for the Nutanix bulls, getting even more upbeat on the cloud giant’s story after earnings.
The analyst reiterates a Buy on NTNX following a fourth fiscal quarter beat for 2018. On Nutanix’s shift over to a subscription business model, Mohan lifts his price target from $63 to $66. This implies nearly 17% upside potential for Nutanix stock. Mohan believes Nutanix’s move to subscription further “underpins” its business “transformation” at play.
Another bullish point of enthusiasm: the cloud giant’s billions are “well on path to reach” management’s $3 billion target. Meanwhile, the analyst explains that Nutanix’s investment in operating expenses is necessary to “fuel growth.”
“As revenue mix shifts to a subscription model, we expect Nutanix to get valued at a higher multiple, similar to the expansion seen by other software companies that have made the transition,” contends the analyst.
Even More Value Potential?
Maxim analyst Nehal Chokshi (Profile & Recommendations) is another recent bull batting for Nutanix’s market opportunity ahead. To the five-star analyst, Nutanix’s stellar billings beat ride on back of software and support billings, which “sustain” over 65% year-over-year growth.
In fact, Chokshi is quite content with the software and support billings guide of 50% to 55% year-over-year. In his view, it’s “very robust.”
The analyst highlights, “Given the successful transition, Nutanix no longer directly bills the customer for the hardware. Management noted that as the installed base of Nutanix appliances refresh on an average of a four-year lifetime, there will be an opportunity to transition the pricing of the operating system and other infrastructure software elements tied to the operating system…”
This means that “the value delivered and measured will be inherently tied more to consumption rather than hardware refresh cycles.”
A consumption-based model translates to better predictability of cash flow along with the “ability to layer in additional value elements and get paid for it is easier as well, leading to a potentially rapidly growing and material SaaS revenue stream,” continues Chokshi.
Moving forward, “Investor day, some time in CY19, will give better view into NTNX’s transition toward a consumption-based model that may unlock significantly more value,” concludes Chokshi. This clearer visibility could offer a “catalyst.”
As such, the analyst maintains a Buy rating on Nutanix with a $72 price target (27% upside potential).
Let’s Hear It for the Nutanix Bulls: It’s a ‘Strong Buy’
Overall, NTXN is a ‘Strong Buy’ stock on Wall Street. TipRanks analytics show 10 bullish recommendations from best-performing analysts in three months. Only one analyst is hedging bets on the sidelines. With confident upside potential of 19%, the stock’s consensus price target stands tall at $67.30.
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