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Why VMware Stock Dipped 13% in May

By Demitri Kalogeropoulos – Updated Jun 10, 2019 at 8:54AM

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The software giant left its outlook unchanged in a recent earnings announcement.

What happened

Software specialist VMware (VMW 0.71%) underperformed a weak market last month as the stock fell 13% compared to a 7% decline in the S&P 500, according to data provided by S&P Global Market Intelligence.

The slump removed just a portion of shareholders' recent returns, as the stock remains higher by 25% so far in 2019.

The inside of a server room.

Image source: Getty Images.

So what

Investors weren't thrilled with VMware's first-quarter earnings report, even though the announcement contained plenty of good news for the business. Sales rose 13%, the company said on May 30, and non-GAAP profitability held steady at 30% of sales. "Q1 was a good start to fiscal 2020 with strength across our... portfolio," CEO Pat Gelsinger said in a press release.

Now what

VMware affirmed all the key elements of its outlook and still expects revenue to pass $10 billion, up from $9 billion in fiscal 2019. Non-GAAP profitability should land at 33% of sales, which implies stronger financial results over the next few quarters. But the stock's long-term success will depend on VMware's ability to continue winning new customers through the inevitable ups and downs in the data center industry.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends VMware. The Motley Fool has a disclosure policy.

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