VMware chugs Q1 2014, with expected results but disappoints
- Summary:
- VMware couldn't catch a break this quarter despite meeting forecast revenue. Soft bookings were the culprit and the stock price got hammered. I'm not worried.
At first blush, the company did well, (download) with licence revenue coming in slightly ahead of $545-555 million expectations with a solid $561 million. That's 15% up year over year. The company said that growth would have been 18% when you discount Pivotal and divestitures. However, the cause for concern lays in their total bookings growth where all major geographies reported bookings growing at sub-10%.
Analysts immediately eyed total bookings growth in Q4 which was in the mid-teens and, marked VMware down, based on the current performance.
Even so, VMware is maintaining its full year growth guidance in the 14-17% range, with licence revenue contributing $2.55-2.61 billion, or a range of 12-16%. That might seem a stretch on Q1 but the differential is not that great and, in any event, will be bolstered by results from the recent Airwatch acquisition.
In similar vein, I am not as concerned as the analyst community. VMware is sitting on a massive $6.6 billion cash pile and generated $750 million in operating cash flow in the quarter, up from $676 million in the previous year. Provided VMware can keep the cash coming in and build future bookings then it is in good shape. But then that will be necessary because VMware attributes a large percentage of non-GAAP earnings to stock based compensation (see image below)
And despite management's discounting Pivotal, I believe that is one to watch for the future. Any company that sets its stall out as the operating system for the 21st century enterprise, builds much of it on open source and turns in revenue around $300 million in its first year is doing something very right.
But is it all sweetness? During the earnings call, Pat Gelsinger hinted at competitive threats:Solving eBay's elastic storage problemDrew Trieger - eBay When mos…Mar 6 2014diginomica.com
Our industry is going through an unprecedented shift, as IT transforms from client server computing to the mobile cloud era, offering customer secure, seamless and instantaneous access to the applications and data they care about. To stay ahead of this shift, IT teams are increasingly choosing to replace their hardware-defined data centers with software-defined data centers, where all core components are virtualized and infrastructure is highly automated and delivered via software.
Software defined infrastructure is one of VMware's key mantras but its parent - EMC - is increasingly seeing its otherwise lucrative storage business being undermined by upstarts like Nutanix, which ironically, is hiring many of VMware's brightest engineers to help build out lower cost storage solutions.
VMware for its part is rolling out software based storage confusion. In addition, it is ramping a range of data center and virtualised network related solutions which, the company believes will have a multiplying effect on results over 2014-15.
The market for technology stocks have had a bad case of the jitters in recent months with momentum stocks like Workday, Salesforce and NetSuite all taking a hammering. The fact VMware's results were soft in the bookings area sent traders into a spin. As I said earlier in this story, VMWare has a solid cash position and is making a good case for maintaining year guidance.
Moving on...