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VMware (VMW) Q3 Earnings Beat Estimates, Revenues Rise Y/Y

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VMware’s (VMW - Free Report) third-quarter fiscal 2021 non-GAAP earnings of $1.66 per share beat the Zacks Consensus Estimate by 16.1% and also increased 16.9% year over year.

Moreover, revenues of $2.86 billion surpassed the consensus mark by 2% and also improved 7.8% on a year-over-year basis.

VMware’s results for fiscal third quarter reflected benefits from its ongoing transition to cloud that fully offset sluggish on-premise project developments. Subscription & SaaS generated 24% of total revenues in the quarter under review. VCPP, modern applications and VMware Cloud on AWS were major top-line contributors.

Notably, VMware Cloud on AWS revenues grew more than 100% year over year. This Zacks Rank #3 (Hold) company also witnessed solid demand for Tanzu solution which was selected by the likes of Fiserv in the reported quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

VMware, Inc. Price, Consensus and EPS Surprise

VMware, Inc. Price, Consensus and EPS Surprise

VMware, Inc. price-consensus-eps-surprise-chart | VMware, Inc. Quote

 

Top-Line Details

Region-wise, U.S. revenues (51.2% of revenues) increased 10.8% year over year to $1.47 billion. International revenues (48.8%) grew 4.9% from the year-ago quarter to $1.40 billion.

Services revenues (54.1% of revenues) rose 6.2% year over year to $1.55 billion. Software Maintenance (82.8% of Services revenues) climbed 6.8% to $1.28 billion. Professional Services (17.2% of Services revenues) were $267 million, up 3.5% year over year.

Total License and Subscription & SaaS revenues (45.9% of revenues) improved 9.8% from the year-ago quarter to $1.32 billion.

License revenues (48.6% of License and Subscription & SaaS revenues) declined 12.2% year over year to $639 million.

Subscription & SaaS revenues (51.4% of segment revenues) jumped 43.8% year over year to $676 million.

Bookings Details

NSX, vSAN and EUC product bookings declined in the low-to-mid-teens range on a year-over-year basis. The company also saw a slowdown for Workspace One projects

However, modern applications witnessed strong product bookings in the reported quarter. Carbon Black Cloud reported robust performance.

At the end of the quarter, VMware had license backlog of $9 million and total backlog of $33 million.

Revenue Performance Obligation increased 10% year over year to $10.2 billion. Of this, 55% is classified as current.

Operating Details

Research & development (R&D) expenses as a percentage of revenues increased 30 basis points (bps) year over year to 20%.

Moreover, sales & marketing (S&M) expenses as a percentage of revenues decreased 270 bps on a year-over-year basis to 28%.

Moreover, general & administrative (G&A) expenses as a percentage of revenues decreased 60 bps to 6%.

Non-GAAP operating margin expanded 250 bps on a year-over-year basis to 31% in the reported quarter, driven by lower spending.

Balance Sheet & Cash Flow

As of Oct 30, 2020, cash & cash equivalents were $3.90 billion compared with $4.70 billion as of Jul 31, 2020.

Total debt as of Oct 30, 2020, was $4.72 billion compared with $6.21 billion as of Jul 31, 2020. During the reported quarter, VMware redeemed $1.250 billion of notes.

Operating cash flow plunged 47.7% sequentially but increased 32.1% year over year to $992 million.

Free cash flow fell 50% sequentially but increased 29.9% year over year to $908 million.

In the reported quarter, VMware bought back $144 million worth of shares.

Key Q3 Highlights

During the reported quarter, VMware acquired SaltStack, a pioneer in building intelligent, event-driven automation software.

Moreover, the company unveiled VMware Carbon Black Cloud Workload and VMware Workforce Anywhere solutions. It also introduced VMware vSphere 7 Update 1, VMware vSAN 7 Update 1 and VMware CloudFoundation 4.1 products.

VMware also announced the 5G Telco Cloud Platform, which includes Tanzu Kubernetes Grid, an embedded Kubernetes distribution. This will allow Communication Service Providers to reliably build, manage and run containerized workloads across private, telco, edge and public clouds.

The company also announced partnerships with Menlo Security and Zscaler (ZS - Free Report) . The partnerships aims at helping large global enterprises simplify the adoption of a complete SASE architecture and more effectively implement Zero Trustsecurity.

Further, VMware announced updates to Tanzu support across VMware Cloud on AWS, Azure VMware Solution and Oracle Cloud VMware Solution.

VMware announced Project Monterey that focuses on evolving the architecture for the data center, cloud and edge to address the changing requirements of next-generation applications including AI, machine learning and 5G applications. The company is partnering with Intel (INTC - Free Report) , NVIDIA, Pensando Systems, Dell Technologies, Hewlett Packard Enterprises and Lenovo.

Additionally, VMware and NVIDIA (NVDA - Free Report) announced a broad partnership to deliver both an end-to-end enterprise platform for AI and a new architecture for data center, cloud and edge that uses NVIDIA’s data processing units to support existing and next-generation applications.

The company also announced collaboration with Samsung to further extend its leadership in 5G. The partnership will help both companies address the needs of Communication Service Providers related to the requirements of 5G networks.

Guidance

For fiscal fourth quarter, total revenues are expected to be $3.225 billion, suggesting 5% year-over-year growth.

Subscription & SaaS and License Revenues are expected to be $1.660 billion (more than 43% from Subscription & SaaS), hinting at 4.5% growth year over year.

Non-GAAP operating margin is anticipated to be 33.5%. Moreover, non-GAAP earnings are expected to be $2.04 per share.

For fiscal 2021, VMware now expects revenues of roughly $11.70 billion, suggesting 8% year-over-year growth.

Subscription & SaaS and License Revenues are expected to be $5.56 billion (more than 45% from Subscription & SaaS), indicating nearly 10% growth year over year.

Non-GAAP operating margin is anticipated to be 32%. Moreover, non-GAAP earnings are expected to be $7.03 per share for fiscal 2021.

Further, cash flow from operations, capital expenditure and free cash flow are now expected to be roughly $3.75 billion, $300 million and $3.45 billion, respectively.

For fiscal 2022, VMWare expects revenues to grow in the high-single digits and non-GAAP operating margin of roughly 28%.

 

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