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VMware to Acquire Venture Cap Backed CloudHealth Technology

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VMware (VMW - Free Report) recently announced that it has signed a definitive agreement to acquire CloudHealth Technologies, a provider of a platform for multi-cloud operations. Notably, the latter has received funding from eminent venture capital firms like Kleiner Perkins, Meritech, Sapphire Ventures, Scale Venture Partners, .406 Ventures and Sigma Prime Ventures. The deal amount as reported by Reuters is $500 million.

CloudHealth has operations across platforms like Microsoft’s (MSFT - Free Report) Azure, Amazon (AMZN - Free Report) AWS as well as Alphabet’s (GOOGL - Free Report) Google Cloud and has a huge base of more than 3000 global customers. The platform enables customers to optimize cost related to cloud usage, performance and security for “native public cloud” infrastructure.

The addition of solutions offered by CloudHealth Technologies is expected to enhance VMware’s capabilities to address multi-cloud environment related problems. This, in turn, is expected to boost the company’s share price momentum going ahead.

Notably, the stock has gained 43% over the past year, outperforming the 37% rally of the industry it belongs to.

How is VMware Poised?

VMware has been gaining from robust performance of NSX and vSAN product lines. Notably, nine out of the top 10 enterprise agreements in the company’s second-quarter of fiscal 2019 included NSX. VMware stated that 82 companies of the Fortune 100 have adopted NSX.

VMware is well poised to benefit from the increasing adoption of cloud-based solutions. The company has been consistently taking initiatives to diversify its product portfolio to include most of the IT infrastructure. Acquisitions of Desktone and Airwatch have significantly strengthened its position in this regard.

VMware also reported impressive second-quarter fiscal 2019 results. Both earnings and revenues increased on a year-over-year basis.

However, VMware’s margins are expected to be dampened by heavy spending. Intensifying competition is also a concern. The stiff competitive environment hurts VMware’s pricing power, which impacts profitability. Additionally, longer sales cycles remain a headwind for this Zacks Rank #4 (Sell) stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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