Analysts Remain Bullish On Nutanix Despite Disappointing Guidance

Shares of Nutanix Inc NTNX plunged more than 20 percent as a second-quarter beat was offset by weaker guidance.

Word On The Street Following The Print

But, some Wall Street analysts are still bullish on the long-term prospects of Nutanix as they feel guidance is overly conservative as the pipeline is stronger and productivity will improve in the next few quarters.

Nutanix guided a third-quarter loss in a range of $0.45 to $0.48 per share versus analyst expectations of a loss of $0.35 per share. The company expects revenue at $180 million to $190 million versus Street view of $188.45 million.

Also, higher DRAM costs forced Nutanix to guide third quarter gross margin at a range of 57 percent to 58 percent, which marks a drop from the reported 60 percent in the second quarter.

Related Link: Nutanix CFO Explains Conservative Guidance: 'There Is A Chance For Over Performance'

Buy-Side Responses

The buy-side analysts noted that Nutanix added a record 909 customers. The bulls were also positive on the increased adoption of Acropolis Hypervisor, which was included on 21 percent of nodes shipped versus 7 percent in the year-ago quarter.

John Lucia of JMP Securities reiterated his Market Outperform rating on Nutanix shares, despite lower-than-expected billings and third-quarter guidance, as he believes the company’s decision to move up-market signals its confidence in the enterprise arena.

In the same vein, Pacific Crest maintains its Overweight rating on Nutanix despite company’s tepid bookings commentary.

“Our longer-term thesis on Nutanix's strategic value as an alternative to public cloud infrastructure is intact as evidenced by customer growth and repeat purchase metrics within strategic accounts; we continue to see limited competition in the market,” analyst Alex Kurtz wrote in a note.

Commenting on the third-quarter forecast, Kurtz said guidance for gross margin appears to be a "kitchen sink" approach, as Nutanix expects limited ability to pass along higher memory component costs to end customers.

“This does leave room for upside as we believe there is some flexibility on this issue with customers,” Kurtz highlighted.

In addition, Matthew Hedberg of RBC Capital too maintains his Outperform rating on Nutanix, saying “we're not overly concerned as we expect productivity to improve and were impressed with the record customer adds and strong G2K wins.”

That said, Katy Huberty of Morgan Stanley downgraded Nutanix to Underweight from Equal-Weight as she expects it will take several quarters for the company to fully address the headwinds.

At last check, shares of Nutanix plummeted 23.07 percent to $23.94.