VMware failed to hit Wall Street's consensus estimates when it reported its Q4 numbers Monday evening and the stock, already hammered down from its highs, lost $22 - more than 26% of its stock price - in after-hours trading. The virtualization leader, now a $1.3BN-a-year venture under heavy fire from Microsoft, earned 19 cents a share (26 cents non-GAAP), better than double last year, on revenues up 80% year-over-year to $412M. As good as the showing was, it was not enough to meet the Street's average - and evidently unrealistic - outlook of 24 cents on revenues of $417.4M.
Credit Suisse’s estimates, which didn’t leave the ground like the others, were closer to the mark, calling for 18 cents (24 cents non-GAAP) on revenues of $410 million.
The company said licenses during the quarter did $284 million, up 75% year-over-year, primarily on the back of its third-generation Infrastructure 3 suite.
Deferred revenues now total $553 million, up 80% even before VMware books all the OEM revenues for the quarter.
The company’s limited guidance only added fuel to the revenue shortfall fire.
Currently on a run rate of $1.6 billion, it forecast revenue growth of 50% this year (18% of it services), largely based on the scale of its business, it said, and a flat margin in the mid-20s. It expects income to decline this quarter because of seasonality.
It said it’s expecting a shift in mix with service growing more than platforms this year. It’s only willing to bet that platforms will grow 30%-40%, a combination, it said, of its size, the coming competition, and its uncertain visibility into how large the overall market will grow.
Dumbfounded and confused as to how exactly the company derived its numbers, analysts considered the drop-off “extreme.”
Desktops, by the way, don’t feature in the guidance. It also hasn’t built any price decreases into its projections. Microsoft figures to undercut VMware. VMware is gambling on the draw of more hardened and superior products.
ESX 3i, its plug-and-play widgetry, for instance, was sent to the OEMs at the end of December.
On the conference call, VMware CEO Diane Green noted – as a way to repel Microsoft’s perceived competitiveness – that 85% of VMware’s software was currently in production and 50% of it running enterprise applications.
When it finally gets here, she said, Microsoft’s Hyper-V hypervisor will still only be a first-generation product and – according to reviewers – less polished than VMware’s first attempts.
The company said its average engagement is now 25 months and, although 58% of its transactions are for under $50,000, it said it’s seeing an increase in larger, multi-year contracts. It’s more and more the standard, it claims, and trusted.
In Q4, its non-GAAP operating income was $108 million, representing 26% of revenues and an increase of 72% year-over-year.
The company now has $1.2 billion in the bank, up $100 million at the end of the quarter, but is still carrying $450 million in long-term debt.
New VMware shares will be coming into the market this year as VMware employees start selling.
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