Nutanix: There have always been losses. You know what's really fattening? Our subs

Market: We're happy with that. (Cue 20% share price boost)

Hyperconverged infrastructure purveyor Nutanix posted the biggest quarterly loss in its short history last night – but still got some love from Wall Street, with shares jumping 20 per cent in overnight trading.

After two quarters of year-on-year revenue decline, Nutanix held steady, reporting a slight bump of 0.5 per cent to sales along with that $229.3m net loss, up 143 per cent compared to $94.3m a year ago.

Revenues for Q1 of fiscal '20 ended 31 October were $314.8m compared to $313.3m a year ago. After several years of successive high-growth quarters, this is Nutanix's third quarter in a row of no or slow growth.

Nutanix, if you remember, reported net losses of $379.6m in fiscal 2017, $297.2m for fiscal '18 and $621.2m for 2019. At the end of Q4, it had an accumulated deficit of $1.6bn.

However, billings growth exceeded guidance; the loss was lower than expected; OEM sales through HPE are going well; and the market seemed happy, with shares up 20 per cent from $28.75 to $34.50.

CEO Dheeraj Pandey emitted this quote: "Our solid Q1 performance, particularly in the Americas, gives us confidence that we have the right formula for global sales leadership as demonstrated by improved productivity and sales hiring over the last six months. We have also seen momentum in key areas of our business, including the transition to subscription and an improved 28 per cent attach rate of new products onto our core HCI platform."

It's all about those cloudy subs

Subscription billings were $276m, 73 per cent of the $380m total billings, up 41 per cent year-on-year. Its target is for 75 per cent of total billings be subscription-based. Nutanix gained 780 new customers in the quarter, taking its total to 14,960 and a 30 per cent year-on-year growth rate. There were a record of 66 deals worth more than $1m, with nine deals worth more than $3m.

Nutanix is moving away from product licence sales towards subscription sales and these have a lower initial sales amount.

Pandey asserted that the subscription model "paves the way for our long-term profitability".

Nutanix and VMware pretty much have a duopoly in hyperconverged infrastructure stakes, and both supply their software to run on commodity hardware. The market is becoming mature and the easy sales growth days are over. 

Customers are adopting multi-cloud strategies and Nutanix appears to be hoping that its subscription-based products can have click-based renewals with little or no direct human rep or channel involvement, lowering its costs.

Pandey said: "If we get this right, it will immensely improve our profitability in the commercial mid-market as most of the prospects would then be enabled with a digital touch and only the self-selected ones would require a human touch.

"We've also done a thousand-odd credit card transactions to sell our cloud services with zero human touch. Digital transactions are core to our future including for subscription renewal and eventually to our profitability."

Pandey alluded to sales problems getting fixed on an earnings call with analysts: "The headline of the quarter was our continued momentum in execution across both sales and marketing ... The Americas region delivered record high software and support ... bookings this quarter."

He said he hopes Nutanix will have its products available in the Google Cloud Platform as they are in AWS and Azure. Amazon Outpost could also run Nutanix software.

He also singled out the partnership with HPE as delivering good sales progress, saying the firm had inked a "nearly $2m deal in Q1 with a new customer, which is a large EMEA-based insurance company".

Subscription billings and revenues are up. But the loss is large, the cash-flow negative and growth flat.

Nutanix is in a long-term competition with Dell's VMware for HCI on-premises and in-cloud sales and its path to profits lie in taking out cost. That means more OEM and public cloud partners. Snuggle up, cloudy folk. ®

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