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Pure Storage’s share price climbs as it leans into its AI advantage

Derek du Preez Profile picture for user ddpreez February 29, 2024
Summary:
In its previous quarter, Pure Storage’s leadership team highlighted the company’s transition to subscription revenue. It is now also benefiting from AI demand.

electronic brain with connection line © Kittipong Jirasukhanont - Canva.com
( © Kittipong Jirasukhanont - Canva.com)

Pure Storage’s share price was up close to 10 percent in extended trading yesterday, upon the release of its Q4 and full-year 2024 earnings. The results themselves were healthy, but the market was likely also responding to CEO Charlie Giancarlo’s comments regarding the demand the vendor is seeing as it relates to buyers’ AI investments. 

This demand should also be recognized within the context of Pure’s recent comments regarding its transition to a subscription-based revenue model (fuelled by its Evergreen//One offering), which again is favored by investors and analysts - and for good reason. Recurring revenue is a much more reliable source of income for a vendor than relying on capital investments every few years. 

Diving into the numbers, Pure Storage announced the following:

  • Q4 revenue $789.8 million, a decrease of 3% year-over-year

  • Full-year revenue $2.8 billion, up 3% year-over-year

  • Q4 subscription services revenue $328.9 million, up 24% year-over-year

  • Full-year subscription services revenue $1.2 billion, up 26% year-over-year

  • Q4 subscription annual recurring revenue (ARR) $1.4 billion, up 25% year-over-year

  • Remaining performance obligations (RPO) $2.3 billion, up 31% year-over-year

  • Q4 GAAP operating income $57.4 million; non-GAAP operating income $157.8 million

  • Full-year GAAP operating income $53.6 million; non-GAAP operating income $458.4 million

It’s worth noting that whilst Q4 revenue decreased slightly, subscription revenue was up significantly - which is to be expected as Pure strives to become a predominately ‘as-a-service’ vendor. Commenting on the results, CEO Giancarlo said: 

We had a solid Q4 performance and ended the year with increasing sales momentum and balanced performance across our product portfolio. This momentum and growing customer interest in our platform strategy provides us with increased confidence for the coming year. 

“This year, we expanded our Evergreen portfolio and increased subscription services revenue to over 40% of total revenue. FY '24 total contract value sales for Evergreen/One and Evergreen/Flex grew to over $400 million, more than doubling over the prior year. Product and platform innovation was strong as evidenced by FlashBlade now exceeding $2 billion in total sales since launch.

A platform and AI advantage

Giancarlo was keen to highlight how Pure Storage’s recent platform strategy moves will aid its future growth, specifically in terms of how Pure has positioned itself as a ‘data storage platform’ that utilizes flash storage, rather than disk. He said: 

Our data storage platform strategy and vision is working and continues to succeed with large enterprises and managed service providers, Pure's strategy to consolidate data storage using a single operating and management environment for the majority of storage requirements just makes more sense than managing multiple different and disparate system environments.

Equally, Giancarlo said that Pure’s ability for customers to manage their data environment as unified storage pools that span data centers and public cloud platforms, all within a single operating and management framework, is proving popular with buyers. He added: 

Pure allows customers to organize their data infrastructure efficiently and optimize their data environment. Our platform vision was a major factor in several strategic enterprise deals in Q4. In one example, a major Fortune 500 financial services firm selected Pure based on our platform strategy, our proven reliability, and our ability to satisfy the majority of their diverse storage needs with a consistent environment and cloud-like operation and efficiency. 

This high 8-figure deal comprised almost all of Pure's products and services and represents our growing success in large enterprise. 

But it was Giancarlo’s AI comments that proved to be particularly interesting. He noted another 8-figure deal this quarter with a new Evergreen//One customer, which is one of the “largest specialized GPU cloud providers for Artificial Intelligence”. The demand from customers as it relates to their AI needs is likely to be significant in the future, Giancarlo said. He explained: 

What truly excites me about AI, confirmed through conversations with customers and partners, is the focus that it is bringing to customers’ fragmented data environments. Customers are beginning to realize that their current fragmented data storage environment will significantly hinder their ability to leverage AI to unlock the full potential of their data. 

Current data storage environments inhibit AI deployments in 2 ways. First, existing data storage arrays were selected to provide just enough performance for their primary function, leaving little performance left for AI access. 

Second, existing storage arrays are not networked, limiting access to AI apps not provisioned directly on their primary compute stack. The Pure Storage platform solves both of these issues. Pure's E-family delivers flash reliability and efficiency at prices now comparable to traditional hard disk systems and with plenty of performance there for AI access. 

And the single operating and management environment of the pure platform across protocols and price performance ranges makes accessing data easier. 

My take

An interesting moment in time for Pure Storage. It seems that the product decisions it was making a couple of years ago - once that cater to scale, efficiency, price and visibility across data - are aligning perfectly with demand seen in the market from customers, seeking platforms for their AI investments. It looks like 2024 could be a compelling year for Pure. 

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