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Pure Storage shares (PSTG) rose more than 15% on Thursday.
Pure Storage reported a bad orientation
The company announced its results for the second quarter of fiscal year 2020 after markets close Wednesday.
Pure Storage reported sales of $ 396.3 million for the second quarter, up 28% from a year earlier. Notably, Adjusted EPS was $ 0.01. Analysts expect Pure Storage to achieve $ 393 million in sales and $ 0.04 in the second quarter.
Although Pure Storage exceeded analyst estimates in the second quarter, the company lowered its guidance for fiscal year 2020. It forecasts sales of between $ 1.645 billion and $ 1.715 billion in 2020, down from previous forecast of $ 1.7 billion – $ 1.77 billion. Pure Storage has reduced forecasts after its first call for results in May.
Pure Storage forecasts sales of between $ 434 and $ 446 million in the third quarter. Analysts expect the company to record revenues of $ 466.3 million in the third quarter and $ 1.73 billion in fiscal year 2020.
The company also announced the resignation of chief financial officer, Tim Ritters, during the call for results. Overall, events resulted in a 10% drop in Pure Storage inventory on Wednesday afternoon. The stock resumed strength Thursday morning in early markets.
In contrast, Splunk (SPLK) beat analysts' second-quarter estimates on Wednesday. Splunk also raised its revenue outlook and provided better forecasts than analysts' estimates. Although Splunk won Wednesday after trading hours, it fell 10% Thursday.
Key indicators in the second quarter
Deferred revenue from Pure Storage increased 47% to $ 607.3 million. Deferred revenue was $ 413.2 million in the second quarter and $ 297.2 million in the second quarter of 2018.
The company managed to add 450 customers in the second quarter, the highest number ever recorded in the second quarter. The Pure Storage customer base now stands at 6,600 customers. Customer base grew by 28% in the second quarter. More than 40% of Fortune 500 companies are Pure Storage customers.
Charles Giancarlo, CEO of the company, said, "Our significant growth this quarter and continued market share gains are the result of creating a modern data experience for our customers. Pure frees businesses to exploit their data rather than lock them. "
Pure Storage claimed that the beta version of its subscription-based product, Cloud Block Store, had been oversubscribed. The response was encouraging.
Market opportunity
Investors are banking on Pure Storage because of its huge addressable market. The company expects the total addressable market to reach $ 50 billion. In particular, it evaluated the $ 6 billion cloud storage market, the $ 16 billion storage software market, the $ 4 billion server storage market, and the $ 26 billion shared storage market.
The company will increase sales by more than 20% per year over the next three years. The company continues to surpass the market for external enterprise storage systems. According to IDC, Pure Storage sales increased 22.4% in the first quarter. In comparison, market revenues increased 5% in the first quarter. The company has a market share of 4.2% in this segment.
Other key players include Dell Technologies, NetApp, Hewlett Packard Enterprise, Hitachi and IBM, with market shares of 34.4%, 13%, 10.9%, 6.6% and 4.7%, respectively.
The company could also be profitable under GAAP by the end of fiscal 2023. Profits are expected to grow at an annual rate of 27.5% over the next five years. Equities have underperformed the market since its IPO in October 2015.
The stock trades at $ 15.9, which is lower than the $ 16 IPO price. Pure Storage shares fell by 50% between September 2018 and August 2019. Analysts have a 21-month target price of $ 21.8, indicating a potential upside of 36% over the current price.
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