Nutanix-Google Deal Has Analysts Wondering If Estimates For 2018 Are Too Conservative

Nutanix Inc NTNX's partnership with Alphabet Inc GOOG GOOGL's Google begs the question: is Nutanix's 2018 estimates now seen as conservative?

Nutanix's partnership with Google serves as an "endorsement" of Nutanix's product offerings, Credit Suisse's Kulbinder Garcha said in a report. In fact, over time the company will gain greater exposure to the $32 billion total addressable market at a faster pace by leveraging its hybrid cloud structure.

"We note Nutanix is the pioneer and leader of the hyperconvergence market, enabling customers to consume datacenter hardware in a cloud-like fashion with its virtualization software," the analyst wrote.

In addition, Nutanix's partnership with Google confirms the company's growth potential and signals the analyst's already above Street estimates are conservative. Specifically, the analyst is modeling Nutanix's revenue to grow 71 percent in fiscal 2017 to $762 million and grow an additional 52 percent the following year to $1.2 billion.

Garcha noted that his estimates are based on the following assumptions:

• A "healthy" customer growth of 12 percent or up to 1,000 additions per quarter,
• A focus on G2000 could help both existing customer deal size and new customer deal size as a G2000 customer's repeat purchase multiple is 7.8x versus x for an average customer, and
• The company is ramping its sales and marketing headcount and a focus on G2000 will drive productivity.

Bottom line, Nutanix's stock is trading at an EV/revenue multiple of 2.7x versus next-generation datacenter peers at 5x. AS such, based on a comparable multiple valuation and discounted cash flow the analyst maintains an Outperform rating on Nutanix's stock with a $38 price target.

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