Despite 'Executing Well,' Pure Storage Catches Analyst Downgrade

Pure Storage Inc PSTG reported a top-and-bottom-line beat in its fourth quarter results, but digging beyond the headline numbers reveals a few concerning metrics, according to Susquehanna.

The Analyst

Susquehanna Financial Group's Mehdi Hosseini downgraded Pure Storage's stock from Positive to Neutral with an unchanged $22 price target.

The Thesis

Pure Storage's earnings report was "strong" and management's guidance for the first quarter was "encouraging," Hosseini said in a note. However, three notable takeaways from the earnings report should be of concern to investors, including:

FlashBlade is gaining traction beyond artificial intelligence deployments, but it's unclear the extent it can compete in file storage environments dominated by Dell EMC's Isilon;
The company isn't expecting a notable decline in NAND average selling prices until the bottom half of 2018; and
Cloud accounted for more than 30 percent of total sales although it's not clear if this was driven by Flash Array or Flash Blade, which is a key driver of the stock.

The midpoint of management's fiscal 2019 revenue and gross margin guidance came in just in-line with Hosseini's expectations. This likely implies that any revenue scaling is "not evident" or convincing enough to justify a revision to the analyst's estimates higher, which would serve as the "net leg of appreciation" moving forward.