The King Of Hyper-Converged No Longer Has A Hyper Valuation
#Nutanix – How long is the road to profitability? Nutanix (NASDAQ:NTNX) has been one of the worst performing names so far in 2017, and as I write this, it is down almost 23% year to date. It is less than six months since the company went public and appreciated 130% on its first day of trading at the end of September 2016. Shortly thereafter, it made a high at $44/share, and for the most part, it has been tracking lower since that time. The company reported earnings at the start of this month, and the shares have fallen to the current trading range losing about one-third of their value in that time and more than 50% of their value since the high that was made back on October 3rd. The concern was guidance, which showed rapidly slowing sequential growth and a deterioration in margins. It is the second time that the shares have reacted negatively to an earnings release since the company had its public debut. Should investors look at this as an entry point, or a name from which to stay far away? I think the valuation has reached a level that presents a reasonable entry point into the name and I think that competitive concerns, while hardly inconsequential, are more than discounted at current share price levels. Nutanix, for those unfamiliar with the company, is a leader in what is called the hyper-converged space. Hyper-converged is a technology that has been developed over a bit more than the past decade that uses software to integrate compute, storage, networking and virtualization resources in a single box built around commodity hardware. That is, no doubt, a gross oversimplification for some. But the fact that multiple functions have been seamlessly integrated in a single box using commodity hardware is seen by some as revolutionary. It has dramatic impacts on the total cost of a data center and turning some of the economics of IT hardware on its head. Currently, many observers and competitors of Nutanix suggest that hyper-converged infrastructure has been optimized for small data centers such as those run in the branches of large enterprises. While that may sound like a quibble, it isn’t really. Nutanix is close to a $1 billion annual run rate in terms of revenues today. It is not likely to achieve continued hyper-growth status if it is unable to sell its solutions to large businesses for mission critical applications. NetApp (NASDAQ:NTAP), in its most recent call, talked about building enterprise class hyper-converged products as though that was a virgin market. It is not an easy argument to decide, but it appears that Nutanix, even in a difficult quarter, has been able to penetrate a fair number of new Global 2000 nameplates and to do so by providing infrastructure with which to run mission-critical workloads.