What happened

Shares of cloud software provider Nutanix (NASDAQ:NTNX) plummeted on Friday following a fiscal second-quarter report that beat expectations but included disappointing guidance. As of 11:15 a.m. EST, the stock was down about 33.6%.

So what

Nutanix reported second-quarter revenue of $335.4 million, up 17% year over year and about $4.2 million above the average analyst estimate. Software and support revenue was $297.4 million, increasing 42% over the year-ago period. Revenue derived from subscriptions totaled $157 million, up 112% year over year. Fifty-seven percent of billings during the quarter came from subscriptions.

A man with his head on a table with declining chart in background

Image source: Getty Images.

Non-GAAP earnings per share came in at a loss of $0.23, compared to a per-share loss of $0.14 in the prior-year period and $0.02 better than analysts were expecting. Free cash flow was a loss of $4.1 million, down from a gain of $32.4 million in last year's Q2.

While Nutanix's results beat expectations, its guidance did not. The company expects to generate third-quarter revenue between $290 million and $300 million, along with a non-GAAP net loss of $0.60 per share. That outlook was well below analyst expectations of $347.6 million in revenue and a non-GAAP net loss of $0.28 per share.

Now what

Nutanix's weak guidance led analysts at Oppenheimer to downgrade the stock from outperform to perform. Oppenheimer believes that the company's lack of sales and marketing investments are starting to cause problems, and that long-term targets may end up being cut.

Nutanix's third-quarter guidance implies year-over-year revenue growth of just 2% at the midpoint, a dramatic slowdown for a growth company. Given that tepid guidance, the steep sell-off should come as no surprise.