After the close last night, data storage and analysis
company Pure Storage (PSTG 17.96, +0.43, +2.45%) delivered solid upside 3Q18 results along with in-line
revenue guidance for Q4. Unfortunately, the stock market is getting hit hard
yet again this morning, which is not helping PSTG's cause. Heading into the
report, PSTG shares had been clobbered, shedding nearly 40% since
mid-September. There hadn't been any notable company-specific news or events to
account for the dive; however, some insider selling did occur in late September
as the company’s CEO, CFO, and President all sold some stock.
Along with the sell-off in the broader market -- and in technology stocks most particularly -- the C-level selling instigated the downward spiral for the stock. Furthermore, as the stock continued to fall, shares ultimately dropped below the key 50, 100, and 200 day moving averages, amplifying the selling pressure.
From a fundamental and financial perspective, though, PSTG has actually been performing pretty well. In fact, the company has exceeded analysts' top and bottom line estimates in every quarter going back to 3Q15. And while revenue growth has tapered off since the company’s 2015 quarters of achieving growth in the triple digit levels, it has remained strong in the 30-50% range over the past nine quarters.
This impressive performance helped launch the stock higher by as much as 60% from its 2015 IPO opening price going into mid-September, when the stock recorded all-time highs just above $29.
As for the company’s Q3 results, PSTG generated Non-GAAP EPS of $0.13, beating the $0.09 consensus. After posting nine straight quarterly losses after its October 2015 IPO, PSTG has now recorded positive EPS in three of the past four quarters, with the $0.13 representing its highest earnings per share yet.
Pushing its earnings higher was an all-time high for Non-GAAP gross margin, which hit 68.1% in the quarter. Product gross margin improved by 200 basis points, mainly driven by strong demand for its FlashBlade and FlashArray product lines. Additionally, Sales and Marketing expenses, as a percentage of revenue, decreased to 39.4% from 42.1% in the year ago quarter. This is an especially encouraging sign, indicating that the product is, in essence, "selling itself", as existing customers appear willing to add services and spending with PSTG.
On the top line, revenue jumped 34% to $372.8 mln, also ahead of the $367.4 mln consensus. During the quarter, the company added 300 new customers and also improved its traction with large enterprises. To put that into context, almost 40% of the Fortune 500 are now PSTG customers.
During the earnings call last night, management also commented that it continues to have success with its partner ecosystem, which is delivering positive results for the company. For instance, in Q3 it built upon its integrations with Splunk (SPLK) and Veritas and also entered into a partnership with IBM to deliver added service solutions to the PSTG portfolio. Additionally, its partnerships with Cisco (CSCO) and NVIDIA (NVDA) continue to flourish.
Lastly, in terms of Q3 catalysts, the company believes that its diversified portfolio continues to give it an edge in the marketplace. As an example, FlashBlade had one of its strongest quarters since the product launched. In Q3, traction in electronic design automation, a traditional file market stronghold, was particularly notable. PSTG now counts three of the top five players in this industry as customers, including both Synopsys (SNPS) and Mentor.
In the company’s earnings press release, it also provided outlook
for Q4 and FY19. For Q4, PSTG forecasts revenue of $438-446 mln, in-line with
the $440.6 mln consensus, with Non-GAAP gross margin of 64.5-67.5%. For FY19,
it sees revenue of $1.376-1.384 bln, slightly ahead of the $1.37 bln consensus.
However, it is anticipating that Non-GAAP operating margin will slip to
3.9-5.3% from the 9.1% it achieved in Q3 and the 8-12% it projects for Q4.
All in all, PSTG delivered another solid performance, but weakness in the overall stock market kept a lid on the stock during the morning.