A month has gone by since the last earnings report for Vmware, Inc. . Shares have lost about 1.9% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is VMW due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
VMware delivered fourth-quarter fiscal 2018 non-GAAP earnings of $1.68 per share, which beat the Zacks Consensus Estimate by a nickel and increased 17.5% from the year-ago quarter.
Revenues of $2.31 billion also topped the consensus mark of $2.26 billion and increased 13.6% on a year-over-year basis. Strong top-line growth was primarily driven by robust performance from NSX and vSAN product line.
Region wise, U.S. revenues (48.1% of total revenues) increased 10.9%, while International (51.9%) grew 16.3% from the year-ago quarter. EMEA delivered robust performance in the reported quarter.
Services revenues (53.7% of total revenues) increased 8.4% to $1.24 billion. License revenues (46.3% of total revenues) increased 20.4% year over year to $1.06 billion.
Hybrid Cloud and SaaS represented more than 8% of total revenues. VMware Cloud Provider Program (“VCPP”) increased more than 30% from the year-ago quarter.
Robust Bookings
NSX license bookings increased 24% year over year and its adoption continues to expand beyond micro-segmentation, automation and application continuity to cloud and container networking, as well as brand's transformation and security.
Moreover, vSAN licensed bookings soared 100% on a year-over-year basis. EUC license bookings were up over 30% driven by robust performance from Workspace ONE, VMware’s platform that securely delivers any application to any device.
However, Compute license bookings (almost 35% of total license bookings) declined 4% from the year-ago quarter. Total Compute bookings increased in the low-single digits range on a year-over-year basis.
Management software license bookings increased more than 10% on a year-over-year basis. Total Management bookings also increased more than 10%.
VMware exited fourth-quarter 2018 with almost $100 million of license backlog, roughly $10 million higher on a sequential basis.
Product Portfolio Expands
During the quarter, VMware introduced VMware Cloud Foundation 2.3, the latest release of its integrated hybrid cloud platform. The company also launched VMware Pulse IoT Center, the first solution in a new family of VMware Internet of Things (IoT) offerings.
The company also announced the general availability of Pivotal Container Service (“PKS”), collaboration with Pivotal Software and Alphabet’s Google Cloud.
Further, VMware-IBM partnership continued to gain traction. Vodafone, Amdocs and Ricoh were notable customer wins during the quarter.
During the quarter, VMware cloud on Amazon Web Services (“AWS”) introduced additional VMware capabilities and support for VMware Site Recovery and VMware vMotion.
Operating Details
Non-GAAP gross margin expanded 20 basis points (bps) on a year-over-year basis to 88.6%. License gross margin expanded 50 bps, while services gross margin contracted 80 bps in the quarter.
Research & development (R&D) and sales & marketing (S&M) expenses as percentage of revenues increased 50 bps and 10 bps, respectively. This was partially offset by lower general & administrative (G&A) expense, which declined 90 bps from the year-ago quarter.
Non-GAAP operating expenses as a percentage of revenues declined 30 bps to 51.3%.
As a result, non-GAAP operating margin expanded 60 bps to 37.3% in the quarter.
Guidance
For first-quarter fiscal 2019, revenues are expected to be $1.955 billion, up 10.1% year over year. License revenues are expected to increase 13.5% from the year-ago quarter to $730 million.
Non-GAAP operating margin is anticipated to be 28.5%. Non-GAAP earnings are expected to be $1.14 per share. The Zacks Consensus Estimate for earnings is currently pegged at $1.08 per share.
For fiscal 2019, revenues are projected to increase 10.8% to almost $8.725 billion. License revenues are expected to increase 11.3% year over year to $3.565 billion.
Non-GAAP operating margin is anticipated to be 33.3%. Non-GAAP earnings are expected to be $6.02 per share.
VMware projects cash flow from operations to grow approximately 11% to $3.55 billion. Capital expenditures are expected to be $280 million and free cash flow of approximately $3.27 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been eight revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 6.9% due to these changes.
Vmware, Inc. Price and Consensus
VGM Scores
At this time, VMW has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise VMW has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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A month has gone by since the last earnings report for Vmware, Inc. . Shares have lost about 1.9% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is VMW due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
VMware delivered fourth-quarter fiscal 2018 non-GAAP earnings of $1.68 per share, which beat the Zacks Consensus Estimate by a nickel and increased 17.5% from the year-ago quarter.
Revenues of $2.31 billion also topped the consensus mark of $2.26 billion and increased 13.6% on a year-over-year basis. Strong top-line growth was primarily driven by robust performance from NSX and vSAN product line.
Region wise, U.S. revenues (48.1% of total revenues) increased 10.9%, while International (51.9%) grew 16.3% from the year-ago quarter. EMEA delivered robust performance in the reported quarter.
Services revenues (53.7% of total revenues) increased 8.4% to $1.24 billion. License revenues (46.3% of total revenues) increased 20.4% year over year to $1.06 billion.
Hybrid Cloud and SaaS represented more than 8% of total revenues. VMware Cloud Provider Program (“VCPP”) increased more than 30% from the year-ago quarter.
Robust Bookings
NSX license bookings increased 24% year over year and its adoption continues to expand beyond micro-segmentation, automation and application continuity to cloud and container networking, as well as brand's transformation and security.
Moreover, vSAN licensed bookings soared 100% on a year-over-year basis. EUC license bookings were up over 30% driven by robust performance from Workspace ONE, VMware’s platform that securely delivers any application to any device.
However, Compute license bookings (almost 35% of total license bookings) declined 4% from the year-ago quarter. Total Compute bookings increased in the low-single digits range on a year-over-year basis.
Management software license bookings increased more than 10% on a year-over-year basis. Total Management bookings also increased more than 10%.
VMware exited fourth-quarter 2018 with almost $100 million of license backlog, roughly $10 million higher on a sequential basis.
Product Portfolio Expands
During the quarter, VMware introduced VMware Cloud Foundation 2.3, the latest release of its integrated hybrid cloud platform. The company also launched VMware Pulse IoT Center, the first solution in a new family of VMware Internet of Things (IoT) offerings.
The company also announced the general availability of Pivotal Container Service (“PKS”), collaboration with Pivotal Software and Alphabet’s Google Cloud.
Further, VMware-IBM partnership continued to gain traction. Vodafone, Amdocs and Ricoh were notable customer wins during the quarter.
During the quarter, VMware cloud on Amazon Web Services (“AWS”) introduced additional VMware capabilities and support for VMware Site Recovery and VMware vMotion.
Operating Details
Non-GAAP gross margin expanded 20 basis points (bps) on a year-over-year basis to 88.6%. License gross margin expanded 50 bps, while services gross margin contracted 80 bps in the quarter.
Research & development (R&D) and sales & marketing (S&M) expenses as percentage of revenues increased 50 bps and 10 bps, respectively. This was partially offset by lower general & administrative (G&A) expense, which declined 90 bps from the year-ago quarter.
Non-GAAP operating expenses as a percentage of revenues declined 30 bps to 51.3%.
As a result, non-GAAP operating margin expanded 60 bps to 37.3% in the quarter.
Guidance
For first-quarter fiscal 2019, revenues are expected to be $1.955 billion, up 10.1% year over year. License revenues are expected to increase 13.5% from the year-ago quarter to $730 million.
Non-GAAP operating margin is anticipated to be 28.5%. Non-GAAP earnings are expected to be $1.14 per share. The Zacks Consensus Estimate for earnings is currently pegged at $1.08 per share.
For fiscal 2019, revenues are projected to increase 10.8% to almost $8.725 billion. License revenues are expected to increase 11.3% year over year to $3.565 billion.
Non-GAAP operating margin is anticipated to be 33.3%. Non-GAAP earnings are expected to be $6.02 per share.
VMware projects cash flow from operations to grow approximately 11% to $3.55 billion. Capital expenditures are expected to be $280 million and free cash flow of approximately $3.27 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been eight revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 6.9% due to these changes.
Vmware, Inc. Price and Consensus
VGM Scores
At this time, VMW has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise VMW has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>