What Bears And Bulls Each Liked About Nutanix's Q3

Nutanix Inc (NASDAQ: NTNX) shares were seen up roughly 12 percent on Friday after the company delivered a big fiscal Q3 earnings beat and guidance raise. After such a strong quarter, Nutanix bulls have plenty to be excited about, but bears also identified a things to like about the quarter as well. Here’s a look at two things Wall Street liked about the quarter and two things it did not.

Bull Takeaway: Huge Deals

Nutanix delivered new partnership deals with major players, including Hewlett Packard Enterprise Co (NYSE: HPE), International Business Machines Corp. (NYSE: IBM), Cisco Systems, Inc. (NASDAQ: CSCO) and Lenovo.

“We believe the new OEM partnerships, particularly with IBM, could help reaccelerate revenue growth for NTNX, which is uncommon [for] startups,” Bank of America analyst Wamsi Mohan said.

Bull Takeaway: Focusing On Software

Higher DRAM and NAND costs weighed on margins in the quarter, but Nutanix’s mix shift toward software will help support margins in the long term.

“We note that software now represents 16 percent of TTM bookings, with increasing adoption of AHV (now at 23 percent), adoption of 606 accounting change and normalized cost environment all helping GM over time,” Credit Suisse analyst Kulbinder Garcha said.

Related Link: Salesforce's Sell-Side Earnings Roundup

Bear Takeaway: Higher Expenses

OPEX is growing right along with revenue, limiting earnings potential in coming quarters.

“Management expects operating expenses to increase (in aggregate) approximately $10 million per quarter, which will result in a larger operating loss than the Street was expecting,” Piper Jaffray analyst Andrew Nowinski said.

Bear Takeaway: Dell Partnership Headwinds

Dell’s percentage of billings decreased from 11 percent in fiscal Q2 to only 9 percent in fiscal Q3, a trend that could continue in the quarters ahead.

“The Dell mix will remain a key focus point as most bears see Dell/EMC reps shifting pipeline over the next few quarters and also see this playing out with Cisco reps/VARs with HyperFlex,” Pacific Crest analyst Alex Kurtz said.

Despite the bearish caveats, all four firms remain bullish on Nutanix stock going forward:

• Bank of America has a Buy rating and a $27 price target for the stock.
• Piper Jaffray has an Overweight rating and a $27 price target for the stock.
• Credit Suisse has an Outperform rating and $38 price target for the stock.
• Pacific Crest has an Overweight rating and $30 price target for the stock.

At time of publication, shares of Nutanix were up 12.58 percent at $19.78.
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