What happened
Shares of Nutanix (NTNX -0.29%) enjoyed a strong post-earnings rally Thursday. The cloud software company's share price climbed 16.8% in the daily session, according to data from S&P Global Market Intelligence.
After the market closed yesterday, Nutanix released results for its fiscal third quarter, which ended April 30, and delivered sales and earnings that came in ahead of expectations. The company recorded non-GAAP (adjusted) earnings per share of $0.04 on revenue of $448.58 million, while the average Wall Street target had called for per-share earnings of $0.03 on sales of $433.4 million.
So what
Nutanix saw strong demand for its cloud-infrastructure services in Q3, with revenue climbing 11% year over year, average-contract-value billings rising 17% to reach $239.8 million, and annual recurring revenue soaring 32% to hit $1.47 billion. The company's gross margin also climbed to 83.8%, up from 83.3% in the prior-year period.
Despite the tough macroeconomic backdrop impacting many cloud-services providers, demand for Nutanix's software continues to look relatively strong, and management's guidance for the rest of the year came in far ahead of the market's targets.
Now what
For the fourth quarter, Nutanix is guiding for an adjusted operating margin between 9% and 10% and sales between $470 million and $480 million. Meanwhile, the average analyst estimate had been calling for sales of $452.2 million in the period.
With its new guidance, the company now expects full-year sales to be between $1.84 billion and $1.85 billion, topping the previous average Wall Street target for revenue of $1.8 billion. The company also expects to record an adjusted operating margin between 6% and 8% for the year.
NTNX PE Ratio (Forward) data by YCharts
Trading at roughly 128 times this year's expected earnings, the stock may look expensive on a price-to-earnings basis, but it's posting solid growth and encouraging margins. With strong positioning in its corner of the cloud services market, the company has promising expansion opportunities ahead and the potential for big earnings growth as the business continues to scale.
