Hyperconverged infrastructure leader sharply reduces next-quarter forecast, blaming slow sales hiring and marketing spending shortcomings
Nutanix, the leader in hyperconverged infrastructure solutions, took a beating on Wall Street during after-hours trading last night as its stock plunged more than 20 percent following a sharply lower forecast for its upcoming quarter. The slowing sales, company officers say, is a consequence of a slower rate of hiring new salespeople and insufficient investments in demand-generation marketing.
The Lowdown: Demand for enterprise cloud computing, hyperconverged infrastructure, and hybrid integrations continues to climb, which is why market analysts believed Nutanix’s upcoming quarter — the third quarter of the company’s fiscal year — would generate revenue around $348 million. Instead, Nutanix issued guidance that sales for March to May would be $290 million to $300 million.
The Details: Nutanix CFO Duston Williams said the lower-than-expected forecast reflects “the impact of inadequate marketing spending for pipeline generation and slower-than-expected sales hiring.” Nutanix says it’s already corrected the sales and marketing shortcomings, but not in time to reverse the next-quarter forecast.
The Impact: Given that Nutanix’s fundamentals remain strong and the market demand for hyperconverged products continues to increase, the less-than-stellar sales trend likely won’t last, barring any unforeseen larger economic disruptions. While Nutanix didn’t specifically mention its channel in its earnings report, the company leans heavily on reseller and integrator partners for account identification and penetration. Chances are that Nutanix will turn to channel partners in the coming months to offset its sales capacity issues.
Background: Fundamentally, Nutanix is a strong and growing company, as reflected in its second-quarter financials:
> $335 million in revenue for the quarter, up 17 percent from the previous quarter
> $413 million in billings, up from $355 million in the previous quarter
> $297 million in software and support revenue, up 42 percent year over year
> 74.4 percent gross margins, up from 62.2 percent in the previous quarter
> 112 percent year-over-year increase in subscription revenue
> 779 customers with more than $1 million in lifetime spending
“Our product portfolio is coming together really well as we double down on simplicity and reliability. On a trailing four-quarter basis, Q2 saw a record 40 percent adoption of AHV, and 21 percent of deals included Essentials and Enterprise product offerings beyond the Core,” said Nutanix CEO Dheeraj Pandey. “We also saw growing momentum toward a recurring-revenue model, delivering 57 percent of billings from subscriptions this quarter. And we’re also pleased to announce the promotion of Chris Kaddaras to lead our sales organization in the Americas region in addition to his existing EMEA responsibilities.”
“We were pleased with our large deal activity and our progress in moving toward a subscription model,” said Williams. “Looking ahead, our third-quarter guidance reflects the impact of inadequate marketing spending for pipeline generation and slower-than-expected sales hiring. We took a critical look at these areas and have taken actions to address them.”
Counterpoint: While Nutanix wrestles with marketing and pipeline issues, rival Pivot3 reports strong revenue growth. The company says its quarterly revenue grew 40 percent and the number of Fortune 1000 customers increased 80 percent.
See Related Report: Pivot3 Boasts Accelerating Double-Digit Growth.