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Why Nutanix Stock Lost 27% Last Month

By Jeremy Bowman - Updated Mar 6, 2020 at 11:15AM

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Shares of the cloud-based hyperconvergence specialist tumbled on a guidance cut in its earnings report.

What happened

Shares of Nutanix (NTNX 3.34%) tumbled last month after the maker of hyperconvergence infrastructure -- which handles computing, storage, and networking needs -- offered underwhelming guidance in its second quarter, blaming the COVID-19 coronavirus and faster-than-expected acceleration to subscription-based revenue. 

As a result, the stock finished February down 27%, according to data from S&P Global Market Intelligence

A digital image of gears, a cloud, a phone and a workflow image.

Image source: Getty Images.

As you can see from the chart below, most of the decline came on Feb. 27 after the earnings report came out.

NTNX Chart

NTNX data by YCharts.

So what

Nutanix had already been sliding when the coronavirus sell-off began on Feb. 24, and then the stock plunged 28.6% on Feb. 27 after the release of second-quarter earnings.

Results for the quarter were actually better than expected. Overall revenue rose 3.4% to $346.8 million as the company transitioned away from hardware and licensed software to a cloud-based subscription model. That figure topped expectations at $341.9 million. Subscription revenue in the quarter jumped 69% to $267 million, showing that the company is executing on its primary goal of becoming a subscription-based business. 

Sales and marketing expenses jumped 43% in the quarter to $304.9 million, making up close to 90% of total revenue, as the company is aggressively pushing its subscription service and new offerings. New product attach rate, or the percentage of deals that include one product outside the company's core offering, rose to 31% from a 21% rate over the last four quarters.   

As a consequence of that marketing spending, its adjusted loss per share expanded from $0.23 to $0.60, but that was still better than expectations of a loss of $0.69 per share. 

CEO Dheeraj Pandey said, "Our solutions-based approach to our go-to-market strategy is helping customers realize the benefits and power of our new products in conjunction with our core software."  

Now what

What caused the stock crash was a cut in full-year guidance. Management now expects software and support revenue of $1.29 billion to $1.36 billion, down from a previous range of $1.3 billion to $1.4 billion, disappointing the market. The company cited the coronavirus having an impact on its Asia-Pacific business, and the faster-than-expected transition to the subscription model, which drags out near-term revenue. Investors may also be wary after the stock fell a year ago on a guidance cut as well.

Nutanix has continued to slide in the first week of March, but investors may be overreacting to the guidance cut, since the company is executing on its goals. 

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