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Nutanix Inc. shares were up 28% in Friday morning and on track for their largest single-day percentage gain on record after the cloud-computing company topped earnings expectations for its latest quarter, announced a private-equity investment, and disclosed the impending retirement of its chief executive.
Some analysts took a more mixed view of the company’s slew of announcements, however, arguing that the cash influx is helpful but there are many unknowns in Nutanix’s NTNX, +27.99% future.
“We think investors (ourselves included) will likely need to further digest increased uncertainty over yet another model transition / pivot at Nutanix – coupled with an announced CEO succession,” wrote Wells Fargo’s Aaron Rakers, who rates the stock at equal weight with a $27 price target.
Raymond James analyst Simon Leopold said that Nutanix “had its share of growing pains, but we have not perceived that investors sought a new CEO.” Departing chief executive Dheeraj Pandey is one of Nutanix’s founders and helped with the company’s 2016 initial public offering.
“As a rule of thumb, we regard unexpected C-level departures as presenting a risk, but the $750 million cash infusion provides an offset” and is the likely reason behind the stock’s big rally, wrote Leopold, who has a market perform rating on Nutanix shares. Bain Capital Private Equity is investing $750 million in convertible notes with an initial conversion price of $27.75 a share.
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Needham’s Jack Andrews wrote that investors “will be particularly encouraged by the capital raise and the sales changes that should confer key long-term benefits (notably improved customer economics),” though he argued that the shift “creates some uncertainty and potential for volatility, as well as pressure [on] cash flow in the near-term.”
He rates the stock a buy with a $30 target price.
William Blair’s Jason Ader seemed among the most upbeat about the broader suite of announcements.
“We think investors will breathe a big sigh of relief from both the solid quarterly results and the influx of cash that should assuage liquidity concerns,” he wrote. “While we salute Pandey on the job he has done in building and evolving Nutanix into a market leader and billion-dollar-plus company, we think the time feels right for a leadership change, especially as the company enters its second decade and embarks on a new direction as a hybrid-cloud software vendor with an ACV [annual contract value] subscription model.”
The company previously focused on total contract value, and Ader wrote that the shift to ACV “will be painful in the near term as lower contract duration will negatively impact revenue, bookings, operating income, and free-cash flow.” Ultimately, though, Nutanix is upbeat that the transition will mean more predictability in the business and a more frequent cycle of renewals.
Ader has an outperform rating on the stock, which has gained 22% over the past three months as the S&P 500 SPX, +0.31% has risen 15%.
