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VMware Provides a Solid Outlook

By Timothy Green – Updated Apr 9, 2019 at 4:54PM

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The company doesn't expect to feel much pain from weakening demand in certain data-center-related markets.

Virtualization solutions provider VMware (VMW 0.27%) reported its fourth-quarter results after the market closed on Feb. 28. Both revenue and adjusted earnings grew at a double-digit pace, although lower interest income due to the $11 billion special dividend paid out in December will reduce earnings growth in fiscal 2020. Nonetheless, VMware's outlook suggests that the company believes it will be able to successfully navigate a difficult IT environment.

VMware results: The raw numbers


Q4 2019

Q4 2018*

Year-Over-Year Change


$2.59 billion

$2.23 billion


GAAP net income (loss)

$502 million

($387 million)


GAAP earnings per share




Non-GAAP earnings per share




Data source: VMware. *Q4 2018 numbers adjusted to reflect the adoption of ASC 606.

What happened with VMware this quarter?

  • GAAP net income included a loss of $38 million related to an investment in Pivotal Software.
  • License revenue was $1.23 billion, up 20.9% year over year.
  • Services revenue was $1.36 billion, up 12.6% year over year.
  • Hybrid cloud subscription and software-as-a-service accounted for 10% of revenue, up 35% year over year.
  • Total bookings for NSX in the fourth quarter exceeded $500 million, with full-year bookings of about $1.3 billion.
  • vSAN license bookings grew by 60% year over year.
  • Enterprise agreements accounted for 51% of total bookings, with 23 deals over $10 million. Nine of the top 10 deals included NSX, while eight of the top 10 deals included vSAN.
  • The $11 billion special dividend VMware paid as part of the deal to bring Dell Technologies back to the public markets will reduce non-GAAP earnings per share in fiscal 2020 by about $0.40 due to lower interest income.

Click here for the latest earnings call transcript for VMWare.

Servers in a data center.

Image source: Getty Images.

What management had to say

CEO Pat Gelsinger gave a brief update on VMware Cloud on Amazon Web Services (AWS) during the earnings call: "VMware Cloud on AWS continues to experience industry momentum across all three [geographies], including closing our largest deal ever at approximately $20 million."

Gelsinger added:

As I said in the earlier comments, we do see the Amazon relationship as unique. As we've described, that's a preferred relationship, the No. 1 public [cloud] with the No. 2 private. And the momentum that we're seeing as we invest and partner with each other is getting great benefit for us mutually in the marketplace.

When asked about weak guidance from other IT companies like Intel, NVIDIA, and Nutanix, Gelsinger tried to reassure investors:

You're clearly going to see these normal cycles of over- and undersupply as people are building up rapidly in different geos. Clearly, there's a whole lot of those other effects that are going to play out where I think we are going to see some winners and losers. When we look at that against our business, we've just positioned ourself, we believe, extremely well in many of these growth sectors.

Looking forward

VMware provided the following guidance for the first quarter of fiscal 2020:

  • Total revenue of $2.245 billion, up 11.8% year over year.
  • License revenue of $865 million, up 11.7% year over year.
  • Non-GAAP earnings per share of $1.27, up from $1.26 in the prior-year period. This includes a $0.10 negative impact from lower interest income.

For the full year, VMware expects:

  • Total revenue of $10.03 billion, up 11.8% year over year.
  • License revenue of $4.275 billion, up 12.8% year over year.
  • Non-GAAP earnings per share of $6.49, up from $6.33 in fiscal 2019.
  • Free cash flow of $3.63 billion.

VMware's revenue growth is set to slow in fiscal 2020, and its earnings growth will be muted partly due to the effects of the special dividend. But the company's outlook still calls for double-digit sales growth, suggesting that VMware's business will hold up better than some other IT companies struggling with weakening demand.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN and NVDA. The Motley Fool recommends NTNX and VMware. The Motley Fool has a disclosure policy.

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