It has been about a month since the last earnings report for Vmware, Inc. (VMW - Free Report) . Shares have added about 6.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is VMW due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
VMware delivered first-quarter fiscal 2019 non-GAAP earnings of $1.26 per share, which beat the Zacks Consensus Estimate by 12 cents and increased 18.9% from the year-ago quarter.
Revenues of $2 billion also surpassed the consensus mark of $1.95 billion and improved 13.8% 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 (46.7% of total revenues) increased 5.4%, while International (53.3%) surged 22.3% from the year-ago quarter. EMEA delivered robust performance in the reported quarter.
Services revenues (61.5% of total revenues) increased 9.8% to $1.23 billion. License revenues (38.5% of total revenues) surged 20.7% year over year to $774 million.
Hybrid Cloud and SaaS represented more than 10% of total revenues. VMware Cloud Provider Program (“VCPP”) increased more than 30% from the year-ago quarter.
NSX license bookings, including VeloCloud, increased more than 30% 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 license bookings soared 70% on a year-over-year basis. VMware stated that adoption of vSAN remains robust due to performance, scalability and deeper integration with vSphere. All 10 of the company’s top 10 deals included vSAN.
EUC license bookings were up in the low teens, driven by robust performance from Workspace ONE, VMware’s platform that securely delivers any application to any device.
Further, Compute license bookings (almost 35% of total license bookings) increased in the low teens from the year-ago quarter. Total bookings for compute increased in the high-single digits.
Management software license bookings increased at a double-digit rate on a year-over-year basis. Total Management bookings also increased at a double-digit rate.
VMware exited first-quarter 2019 with almost $122 million of license backlog, roughly $23 million higher on a sequential basis.
Product Portfolio Expands
During the quarter, VMware unveiled virtual cloud network, which enable organizations to create a digital business fabric for connecting and securing apps data and users in a hyper distributed world. The company also announced the VMware NSX networking and security portfolio.
Further, management announced the European availability of VMware Cloud on AWS.
VMware also introduced a number of updates to its Workspace ONE platform. Moreover, the company unveiled new releases of VMware vSphere and vSAN.
During the quarter, VMware acquired the assets of user behavioral analytics startup, EA Security.
Non-GAAP gross margin expanded 120 basis points (bps) on a year-over-year basis to 87.4%. License gross margin contracted 10 bps, while services gross margin expanded 140 bps in the quarter.
Research & development (R&D) and general & administrative (G&A) expenses as percentage of revenues decreased 80 bps and 40 bps, respectively. This was partially offset by higher sales & marketing (S&M) expense, which increased 270 bps from the year-ago quarter.
Non-GAAP operating expenses as a percentage of revenues increased 150 bps to 57.6%.
As a result, non-GAAP operating margin contracted 30 bps to 29.8% in the quarter.
For second-quarter fiscal 2019, revenues are anticipated to be $2.145 billion, up 11% year over year.
License revenues are expected to increase 11.7% from the year-ago quarter to $875 million.
Non-GAAP operating margin is anticipated to be 33.5%. Non-GAAP earnings are expected to be $1.49 per share.
For fiscal 2019, revenues are projected to increase 11.7% (up from 10.8%) to almost $8.780 billion (as compared with $8.725 billion).
License revenues are expected to increase 12.8% year over year to $3.610 billion.
Non-GAAP operating margin is anticipated to be 33.6%. Non-GAAP earnings are expected to be $6.14 per share.
VMware projects cash flow from operations of $3.60 billion. Capital expenditures are expected to be $280 million and free cash flow of approximately $3.32 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been ten revisions higher for the current quarter.
At this time, VMW has a nice Growth Score of B, however its Momentum is doing a bit better with an A. 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.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
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.