Nutanix Stock (NTNX): Should I Buy It Now?

By Amit Chowdhry ● August 31, 2020
  • Should you buy the Nutanix stock (NASDAQ: NTNX) now? Here is some information to help you decide.

The stock price of Nutanix Inc (NASDAQ: NTNX) — which is a company that is known for offering cloud software services to its customer base of about 17,360 companies to help modernize data centers and deploy applications — has been gaining some traction within the last few trading days following a number of events. The company’s stock price was trading at $21.69 as of August 27 and then it jumped over 30% since then. This is what happened:

Private-Equity Investment From Bain Capital Private Equity

Bain Capital Private Equity announced it will be investing $750 million in Nutanix through convertible notes. The convertible notes will be initially converting at a price of $27.75 per share. This money will be used for funding the company’s growth. And the transaction is expected to happen in September.

Bain’s investment is in the form of private investment in public equities (PIPE). This deal generally refers to private investors or mutual funds buying large portions of a publicly-traded stock, generally at a discount.

Due to the COVID-19 pandemic, a number of companies have been seeking funding — which has driven the popularity of PIPEs. For example, Silver Lake and Apollo Global Management bought a $1.2 billion stake in Expedia in the form of a PIPE in March and Great Hill Partners made a $535 million investment in Wayfair.

While some of those companies needed short-term funding in the form of PIPEs, Nutanix sought capital in order to help transition the company to an annual contract value (ACV) model (more on that below). Bain is experienced in helping some of the software companies in its portfolio transition to similar models, including BMC and Blue Coat.

“Nutanix is executing on a compelling vision for a differentiated hybrid cloud platform that provides flexible environments and is easily paired with other cloud platforms,” said Bain Capital managing director David Humphrey. “We are thrilled to be investing in Nutanix and partnering with the board as we help them continue in their journey in hyper converged infrastructure and hybrid cloud. We think the company has substantial growth opportunities ahead.”

Humphrey and Bain Capital managing director Max de Groen are joining Nutanix’s board.

Q4 2020

For the fiscal Q4 2020 ended July 31, Nutanix’s revenue increased 9% to $327.9 million from $299.9 million compared to the prior year. Analysts were expecting about $8 to $10 million less in revenue.

While the company reported a net loss of $185.3 million (93 cents a share) for the quarter, the losses have been narrowed from $194.3 million in the same quarter a year ago.

Nutanix’s Non-Portable Software revenues (9% of revenue) dropped 64.1% year-over-year to $29.5 million. And hardware revenues (0.4% of revenues) plummeted 89.2% to $1.4 million.

The Software and Support revenues were $326.5 million, up 14% year over year. And Billings increased 4.5% year over year to $388.5 million. Software and Support billings jumped 7.9% year-over-year to $387.1 million. The Annual Contract Value billings surged 13% year-over-year to $139.9 million.

In terms of cash, Nutanix said it had $719.8 million in cash and cash equivalents plus short-term investments as of July 31, 2020 compared to $732 million as of April 30, 2020. And cash flow from operations was $3.6 million compared to the outflow of $163.5 million in the previous quarter.

Deferred revenues saw a 30% jump year-over-year to $1.18 billion at the end of the quarter.

CEO Dheeraj Pandey Retiring

The company also announced that Nutanix Inc (NASDAQ: NTNX) CEO and co-founder Dheeraj Pandey will be retiring once the company names a successor. Pandey is going to remain the chairman and CEO of the company while the company conducts a formal search.

“While I will miss being in the trenches with our team every day, working from home alongside my family over the last several months has been a fulfilling experience. I look forward to spending more time with our children and allowing myself the space and flexibility to read and write, and learn new domains, which simply hasn’t been possible as a full-time CEO,” stated Pandey.

Pandey also thanked the dedication of the company’s 6,000 employees for growing the company through innovation and collaboration. The company will be working with the assistance of a leading global executive search firm to find a successor.

“Silicon Valley’s history is filled with storied founders and legendary visionaries and Dheeraj Pandey has earned a place among them,” added Nutanix lead independent director Ravi Mhatre. “On behalf of the entire Board, I thank Dheeraj for his vision and invaluable contributions, which have enabled Nutanix to grow from a simple idea to the market leader and successful company it is today. We support his decision to begin another chapter and deeply appreciate that he will continue to lead the management team until a successor has been appointed.”

Partnership With Intel

Earlier this month, Nutanix recently announced the launch of a first-of-its-kind joint innovation lab in collaboration with Intel. The Nutanix-Intel Joint Innovation Lab is going to dedicate both products and engineering resources to the continued exploration, adoption, and productization of Intel’s latest innovations in compute, networking, and storage with the Nutanix software stack.

Nutanix and Intel’s Innovation Lab opens the door for specialized engineering and resources. And it also brings together the best of hybrid and multicloud with industry-leading computing power for end-users.

“At Nutanix, we have long understood the importance of creating synergies between technology market leaders. By launching this Innovation Lab with Intel, we are actively working on critical projects to better equip our customers and have already made progress in several priority areas,” explained Tarkan Maner, Chief Commercial Officer at Nutanix. “We are thrilled to have this innovation hub with Intel to cement our joint product leadership and look forward to a fruitful collaboration in the months to come.”

In order to accelerate joint innovations, Nutanix and Intel will establish physical labs – with both on-site and remote access – to enable and accelerate the adoption of new Intel Technologies on Nutanix architecture, utilizing tools and expertise to optimize joint solutions, and generating compelling proof-points for stronger marketing efforts by Nutanix and Intel.

“The Innovation Lab launch with Nutanix is an exciting foundation to integrate Intel’s latest and most innovative technology on the Nutanix stack,” commented Jason Grebe, Corporate Vice President of Cloud & Enterprise Solutions Group at Intel. “We’re looking forward to delivering continued product performance and agility for our customers with this collaboration.”

Nutanix Stock (NTNX): Should I Buy It Now?

Case From The Bulls

Raymond James analyst Simon Leopold noted that Nutanix had its share of growing pains, but he did not perceive that investors were seeking a new CEO. “As a rule of thumb, we regard unexpected C-level departures as presenting a risk, but the $750 million cash infusion provides an offset,” noted Leopold. 

Jack Andrews of Needham wrote investors will be “encouraged by the capital raise and the sales changes that should confer key long-term benefits (notably improved customer economics).” But he acknowledged that the shift in business model creates some potential for volatility and pressure on cash flow in the near-term. Andrews rated the stock as a buy with a $30 price target.

Jason Ader of William Blair wrote:

“We think investors will breathe a big sigh of relief from both the solid quarterly results and the influx of cash that should assuage liquidity concerns… While we salute Pandey on the job he has done in building and evolving Nutanix into a market leader and billion-dollar-plus company, we think the time feels right for a leadership change, especially as the company enters its second decade and embarks on a new direction as a hybrid-cloud software vendor with an ACV subscription model.”

Case From The Bears

In a note to Marketwatch about a stock equal weight with a price target of $27, Wells Fargo analyst Aaron Rakers wrote:

“We think investors (ourselves included) will likely need to further digest increased uncertainty over yet another model transition/pivot at Nutanix, coupled with an announced CEO succession.”

Baird senior research analyst Jonathan B. Ruykhaver downgraded Nutanix to neutral since the company has not provided visibility for its business operations going forward along with the challenges associated with an aggressive shift to an ACV model.

“Additional causes for concern include the announced departure of the company’s co-founder/CEO and general macroeconomic pressures,” said Ruykhaver in a research note.

Nutanix Stock (NTNX) Performance (As of 8/31/20 morning)

1-Day: Up About 3%

5-Day: Up About 37.54%

1-Month: Up About 30.10%

3-Month: Up About 18.42%

6-Month: Up About 19.84%

YTD: Down About 9.44%

1-Year: Up About 26.18%

Since IPO: Down About 21.97%

Based on these metrics and the recommendations from the analysts, I plan to buy a very small position in Nutanix in order to track the company’s future growth in my portfolio. And if I start noticing upticks in the stock price, I plan to buy more shares in the company in the form of fractional shares.

Some of you may look at these numbers and decide to put your money towards companies that have seen more consistent growth, which is also a great strategy. Once Nutanix names its new CEO and reports several quarters under new leadership, I will do a follow-up about how the company is doing and reassess my opinions.

Disclosure: I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.