Partners unfazed by Nutanix's share price plummet

The storage vendor acknowledged a host of issues that combined for a weaker Q3 forecast

Nutanix saw its share price drop over 30 per cent after releasing its second quarter results on Thursday, despite reporting healthy revenue growth of 17 per cent to $335.4m.

The vendor set guidance of between $290m and $300m for its third quarter, which was far under the $340m expected by analysts.

In an earnings call with investors, CEO Dheeraj Pandey outlined a series of issues that have come to a head due to "imbalances" in lead generation that has had a knock-on effect on its sales pipeline.

In the call, transcribed by Seeking Alpha, Pandey acknowledged that Nutanix had not kept up with its "bullish" sales hiring targets, as well as dropping the ball on the messaging around its broader offerings portfolio.

"While we were pleased with our progress with moving toward recurring subscription business as well as with our large deals in EMEA performance, we were disappointed to miss our pipeline targets," he said.

"Generally speaking, our Q2 was a quarter that should afford us to build backlog and that did not happen this year.

"In fiscal 2018, we reallocated some of our lead generation spending to other priorities.

"Although we started making this adjustment in Q2, we expect it to take a couple of quarters to show meaningful results.

"In the meantime, we will double down on driving further business from within our large existing enterprise customer base, while the augmented lead generation spending works its way into the pipeline."

However, news of the cloud infrastructure vendor's price plunge is not causing concern among some of its UK partners.

Jonathan Lassman, managing director at Epaton, argued that Nutanix offers the best product in the hyper-converged infrastructure (HCI) space and that the falling share price doesn't tell the whole story.

"They are setting massively high targets for themselves while they are still growing and the stock market wants them to hit those numbers," he said.

"I can understand where the stock market is coming from, but you cannot beat the revolution.

"They are winning a thousand net new logos a quarter. By what measurement can we call that a failure? It is ridiculous growth.

"The metric to watch with these growth companies isn't just the revenue number, it's also the new customer acquisition and Nutanix are flying, in that respect."

Nutanix's shift from hardware to a software-focused company, as well as its move from a licensing model to a subscriptions model, was also cited as contributing factors to the situation it now finds itself in.

Lassman stated that the majority of Epaton's sales of Nutanix products are of its hardware, and he has observed a conflict between its focus on software and the customer demand for its hardware.

"The only thing that I see that is a conflict is that they keep saying ‘We are a software company', but all of their customers want to buy that software on Nutanix hardware - so they are a hardware company with amazing software," he explained.

Michael O'Hara, group managing director at Irish distie DataSolutions, told CRN that he is starting to see the impact from Nutanix's shift from hardware to software, and is looking forward to the new markets it will open up.

"We will really see that software focus hit the road this year," he said.

"We are delighted with that because we are more of a software distributor, and it opens up the market more.

"Corporates like Nutanix, they like its messaging and what it brings to the market but they may have made a commitment to a specific vendor, like HP, and have built up support systems around that vendor.

"The fact that Nutanix software can be used in conjunction with the likes of Dell and HP will open up new revenue streams for it."

O'Hara also viewed the appointment of Chris Kaddaras to head the US sales division, along with his current role as head of EMEA sales, as a positive move for the company.

CEO Pandey praised Kaddaras for "turning around a challenged business" in the EMEA region and hopes that he will bring that experience to bear on the US market.

O'Hara is confident that the vendor is making the right moves and that the plunging share price will not affect its overall position in the HCI space.

"From our point of view, we want to be representing the number one or number two vendor in the world in their respective spaces, and Nutanix is definitely that in HCI," he said.