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Why Analyst Upgraded Nutanix

The Fly has a more detailed summary of the analyst's report:

thefly.com/...

Shares of Nutanix (NTNX) are on the rise on Thursday after William Blair analyst Jason Ader said that recent reseller commentary points to the early stages of an upswing. Further, the analyst highlighted that the resellers note a "solid pace" to their Nutanix business in the July quarter with a growing number of seven-figure deals, an improving pipeline and good distribution across commercial and public sector accounts and across workloads.

$NTNX, Nutanix, Inc. / H1

EARLY SIGNS OF UPSWING: In a research note to investors, William Blair's Ader said that after Nutanix's business started the calendar year with a six-month "rough patch," recent reseller commentary points to the early stages of an upswing. The resellers note a "solid pace" to their Nutanix business in the July quarter with a growing number of seven-figure deals, an improving pipeline, and good distribution across commercial and public sector accounts and across workloads, the analyst added. Further, Ader pointed out that multiple resellers said the pipeline expansion has been supported by aggressive sales hiring at Nutanix and increasing sales coverage. In addition, he heard that the company's organization has refocused on the core HCI business, emphasizing new logos and footprint capture "instead of jamming its full-stack vision down customers' throats." Resellers also noted significant interest in several of Nutanix's new products, including Xi Leap, Files, Frame, and Beam, especially as an up sell to the installed base.

Additionally, the analyst highlighted that HCI demand remains "robust" with the market still "a two-horse race" competitively, with Nutanix and Dell (DELL)/VMware (VMW). Resellers' discussions leave "no doubt" that Dell has become stronger in the HCI space over the past year, but Nutanix continues to win its fair share of deals because of the "quality of its HCI product and its category-leading brand," he contended, adding that several resellers acknowledged, however, that the public cloud has been consuming more infrastructure spending, which creates long-term headwinds to Nutanix's business.

While Nutanix's transition to a term-based licensing model has created near-term challenges, the analyst as well as resellers believe that it will yield long-term benefits for Nutanix's business with respect to visibility/predictability, customer lifetime value, and sales leverage. Overall, Ader said he finds Nutanix's valuation "compelling" at current share levels, reiterating an Outperform rating on the name.

Related: Cloudera $CLDR.

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