VMware (NYSE:VMW) this evening posted earnings results for its fiscal third quarter. And true to form, the software giant beat Wall Street expectations on both the top and bottom lines. But there was plenty more to the quarter than just surprisingly high revenue and sales figures. Indeed, the stock was down by as much as 6% in early after-hours trading. So let's look at a few highlights from the just-published results.
Strong revenue growth
Increased competition from the likes of Microsoft and Amazon.com isn't stopping VMware from finding opportunities to boost revenue. Quarterly sales spiked by 18% over the prior year's period to reach $1.52 billion. Not only was that growth at the high end of management's June guidance, but it also represents a slight acceleration from last quarter's 17% gain. Meanwhile, the total sales figure was just above the $1.5 billion Wall Street analysts had targeted.
CEO Pat Gelsinger said in a press release accompanying the results that the company's broad portfolio of products is finding good traction right now with customers, who are "looking to VMware for technology choices that liberate them from the constraints of hardware, and which offer a new model for security, optimized for a world of millions of applications."
Profit and profitability
Quarterly profit also came in ahead of estimates. Analysts had been looking for adjusted earnings to dip slightly to $0.83 per share from last year's $0.84 haul. Instead, VMware managed a 3% gain to $0.87 a share. For investors keeping track, that marks the fifth straight quarterly beat for VMware on earnings.
The news was more mixed on the issue of profitability, though. Expenses surged in the quarter, which dragged operating margin down to 16% of sales. Sure, that was an improvement over the prior quarter. But it was a big step back from the 22% the company managed in Q3 of last year. Those added expenses ensured that VMware netted 26% less in operating income despite a nearly 20% jump in sales.
Geographical sales mix
VMware also seemed to find less success in its international business this quarter. In fact, over 70% of the roughly $230 million in added sales in Q3 came from the United States. That bounce helped push domestic revenue to 53% of sales, which is well above the 48% the company has averaged over the past three years.
The spike might be an indication that demand is softening in other areas of the world, like Europe, but it may also just be the consequence of a handful of large U.S-based licensing contracts that happened to close in the quarter.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and VMware and owns shares of Amazon.com, Microsoft, and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.