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This Cloud Stock Could Head Higher After Its Latest Earnings Report

By Harsh Chauhan – Dec 2, 2021 at 2:10AM

Key Points

  • Nutanix easily beat Wall Street's expectations in the first quarter of fiscal 2022.
  • Nutanix customers are spending more on its offerings, leading to better margins and lower losses.
  • Nutanix's guidance, long-term customer contracts, and a relatively attractive valuation make it a cloud stock worth considering.

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An improving customer base and higher spending should help this company sustain its impressive growth.

Nutanix (NTNX -0.04%) share prices jumped 8% following the release of its fiscal 2022 first-quarter earnings report on Nov. 23. The hybrid cloud specialist reported impressive growth in its revenue, margins, and other metrics that indicate it can maintain high growth rates for a long time to come.

The robust numbers and outlook could help arrest the slide in Nutanix's stock price that began for no apparent reason at the start of September. The company exited the previous fiscal year on a high, and it looks set to switch into a higher gear in the new one. Let's look at the key takeaways from Nutanix's latest report and see why it could be a good bet for investors looking to add a cloud stock to their portfolios.

Person holding an outline of a cloud.

Image source: Getty Images.

Robust growth across the board

Nutanix's first-quarter revenue increased 21% year over year to $378.5 million, while its non-generally accepted accounting principles (GAAP) net loss per share dropped to $0.22 from $0.44 in the year-ago period. Wall Street was looking for a much bigger loss of $0.76 per share on revenue of $368.5 million, but the strong growth in Nutanix's subscription business and a nice bump in its customer base helped it turn in a stronger-than-anticipated performance.

Nutanix exited Q1 with 20,700 customers, a 15% increase over the prior-year period. More importantly, Nutanix's customers spent more money on its hybrid cloud solutions as evident from a sharp spike in lifetime bookings. Nutanix had 1,580 customers with lifetime bookings of more than $1 million at the end of Q1, a jump of nearly 24% from the year-ago period. The number of customers with lifetime bookings in the range of $3 million to $5 million increased 29% during the quarter, while those with lifetime bookings of more than $10 million jumped 38%.

The increase in lifetime bookings bodes well for Nutanix's future growth. That's because lifetime bookings (or customer lifetime value) measure the profit earned from a particular customer. It is arrived at by deducting the money spent to acquire and service a customer from the amount of revenue generated from that customer. So, the increase in this metric means that Nutanix's customers have increased the usage of its offerings or have bought new products from the company.

This combination of a larger customer base and higher spending has been a tailwind for Nutanix's gross margin.

NTNX Gross Profit Margin Chart

NTNX Gross Profit Margin data by YCharts

Nutanix's terrific growth is here to stay

One of the reasons why Nutanix delivered impressive top- and bottom-line growth last quarter is because of the switch that the company had made to a subscription-based business model four years ago. The subscription business accounted for 89% of Nutanix's total revenue last quarter, up 21.5% year over year.

What's more, Nutanix customers sign long-term contracts with the company. The average contract term in the fiscal first quarter is 3.1 years. So Nutanix's long subscription contracts and the fact that it gets most of its revenue from this business model should pave the way for long-term revenue and earnings growth.

This shows up in the company's guidance for the current quarter and for the full year. Nutanix anticipates $405 million in revenue in the fiscal second quarter, which points toward a 17% improvement over the year-ago period. The company has guided for $1.62 billion in revenue for the full year at the midpoint of its guidance range, which would be a 17% jump over its fiscal 2021 revenue of $1.39 billion.

With Nutanix trading at 4.8 times sales as compared to the five-year average price-to-sales ratio of 5.25, investors looking for a potential growth stock should keep this cloud play in their sights before it soars higher.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Nutanix. The Motley Fool has a disclosure policy.

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