Nutanix Stumbles Amid Shift to Hyperconverged Infrastructure (HCI) Subscriptions
Nutanix, the hyperconverged infrastructure (HCI) technology company, continues to grow — but not as quickly as Wall Street investors want. In fact, the company is suffering from a weaker-than-expected sales pipeline amid the shift from HCI hardware to software to subscription services, Nutanix has revealed.
The situation starts on a positive note: Revenue for the company’s Q2 fiscal 2019 was $335.4 million, up from $286.7 million in the corresponding quarter the previous year. The growth was roughly $4.2 million more than Wall Street was expecting. So far, so good. Also, subscription revenue surged 112 percent to $157 million as the company continues it shift from hardware to software to subscriptions. That’s also solid progress.
Now, the reality check: Nutanix stock declined 24 percent in pre-market trading Friday morning amid weak Q3 2019 revenue guidance from the company. The weakness is particularly glaring considering rival Dell Technologies revealed no such sales pipline issues during its own earnings call on Thursday.
Among the potential areas of concern for Nutanix: The company potentially hasn’t made proper sales and marketing investments amid so many product and business model shifts, according to Oppenheimer.
Nutanix Challenges: Too Many Products Amid Subscription Services Shift?
During the company’s earnings call, an analyst from William Blair asked Nutanix officials if the company focused too heavily on enterprise customers; introduced too many products in 2018; and potentially confused channel partners with all the new offerings.
Nutanix CEO Dheeraj Pandey conceded multiple points. In particular, the company’s sales team members and partners have faced multiple shifts over the past 18 months — including a switch to software-only and now subscription-centric sales, Pandey said.
Stealing a page from former Intel CEO Andy Grove, Nutanix “let chaos reign in the first half of 2018” with a product portfolio that lacked crisp messaging, Pandey conceded. More recently the company realized it had to “do a better job of messaging and classification and things of that nature.” In recent months, Nutanix has been striving to reign in the chaos — to “really think about the customer journey,” he added.
“We are a high velocity company and sometimes we let chaos reign and then we go and rein in the chaos. But I think the most important [item to consider] is how our sales force has actually gone through two big transformations in the last 18 months, 24 months,” he concluded.
The biggest potential red flag noticed by ChannelE2E: Nutanix during the earnings call barely mentioned partners, and company officials largely failed to mention the channel as potential fixes for the company’s weaker-than-expected sales pipeline.
Nutanix needs to boost its partner messaging in time for the Nutanix Next 2019 conference — which is scheduled for May. The company’s core partners are expected to be on hand for that gathering.