Please ensure Javascript is enabled for purposes of website accessibility

Why Nutanix Stock Lost 27% Last Month

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nutanix Stock Quote
Nutanix
NTNX
$15.48 (3.34%) $0.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
321%
 
S&P 500 Returns
111%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.