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Why VMware Stock Is Diving Today

By Eric Volkman – Aug 27, 2021 at 4:02PM

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The company's full-year earnings guidance indicates a slight decline, and there is concern about its revenue mix.

What happened

VMware (VMW -0.69%) stock was down by around 7% in late afternoon trading today, following the release of the company's latest quarterly results.

So what

After market hours on Thursday, VMware revealed that its second-quarter 2022 revenue was $3.14 billion, a 9% improvement year over year. The cloud computing specialist's adjusted net income rode in the opposite direction, declining to $739 million ($1.75 per diluted share) from the year-ago result of $766 million.

A woman working at a PC.

Image source: Getty Images.

Both line items beat the average analyst estimates. Prognosticators following the tech stock believed VMware would post $3.10 billion in revenue, and an adjusted per-share net profit of $1.64.

Meanwhile, the company lifted its earnings guidance for the entire fiscal 2022. On a conference call discussing the second-quarter results, CFO Zane Rowe said that VMware now expects to book $6.90 per share in adjusted profit, on $12.8 billion in revenue. Those figures for fiscal 2021 were $7.20 per share and $11.8 billion.

Now what

If VMware hits its 2022 targets, it would mean relatively low 8% revenue growth; the company has shown notably higher rates in previous years. Additionally, no one likes to hear that their investment's profitability is likely to drop (by 4% on an adjusted, per-share basis, if we go by VMware's full-year guidance).

Investors might also be concerned about the changing nature of the company's top line. TheStreet.com reported that in lowering his price target slightly on the stock, BMO Capital Markets analyst Keith Bachman wrote that "the mix of revenues, with more license and less subscription and SaaS [software as a service] was disappointing."

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

Stocks Mentioned

VMware Stock Quote
VMware
VMW
$120.84 (-0.69%) $0.84

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