Introducing The Latest Disruptor In Data: Nutanix

Bank of America Merrill Lynch analyst Wamsi Mohan believes Nutanix Inc NTNX is the next big thing in data.

Mohan reiterated a Buy rating with a $27 price target.

Nutanix Beats The Street And Accelerates Growth

The company’s EPS of negative $0.42 was $0.03 better than Street estimates. In addition, $191.8 million in revenue (a 67-percent increase year-over-year) beat consensus by $5.4 million.

The analyst continues to be bullish, citing “strong leadership in [the] fast growing HyperConverged part of the data center, with an increasing software mix and differentiated hypervisor.”

Nutanix has new original equipment manufacturers in Hewlett Packard Enterprise Co HPE's ProLiant Server, Cisco Systems, Inc. CSCO's UCS B-Series (already on C-Series, Mohan notes) and International Business Machines Corp. IBM's IBM Power Systems.

“We believe the new OEM partnerships, particularly with IBM, could help reaccelerate revenue growth for NTNX, which is uncommon at startups,” said Mohan.

Nutanix also expects to have a positive free cash flow for fiscal 2018.

Higher Costs Lie Ahead

Higher DRAM and NAND — two forms of data storage — costs brought Non-GAAP gross margin for the quarter down 139 basis points quarter-over-quarter and down 405 basis points year over year to 58.4 percent.

These costs are expected to hurt gross margin percentage next quarter by 600 basis points year over year. The company hopes to offset this by increasing its software revenue mix.

Operating expenses are also projected to be higher than the analyst had expected, increasing at $10 million per quarter for the next few quarters.

Revised Estimates

Mohan’s bumped his Q3 fiscal 2017 revenue estimate from $211 million to $217 million, as well as his fiscal 2017 total revenue estimate from $748.3 million to $758.1 million. The analyst also forecasts $1.10 billion in fiscal 2018.

Estimates for Q3 fiscal EPS remain unchanged at negative $0.38, but total fiscal 2017 EPS estimates were raised from negative $1.51 to negative $1.45.

At time of publication, shares of Nutanix were up 10.47 percent at $19.41.