Nutanix Would Be Worth Even More Without Hardware

Having risen at Mach speed after its IPO, #Nutanix stock has leveled off at around $30 per share. But there’s an argument that the company is worth even more, $43 per share, if you value it as a software-only play. It’s a what-if scenario and not meant to be taken as a formal prediction. But it suggests how far hardware could be commoditized as hyperconverged infrastructure and the cloud become more ensconced in enterprise IT.

The theory was part of an initial Nutanix report issued today by Simona Jankowski of Goldman Sachs. She is one of several analysts that issued reports and recommendations on Nutanix today, following the mandated quiet period after the IPO.

Certainly, Nutanix sells hardware. But Jankowski’s point is that it’s commodity hardware, purchased from outside — and more importantly, Nutanix probably doesn’t make any money off of it.

“Their appliances are commodity x86 servers from Supermicro which we view as largely “pass-through” revenue that is resold at cost (i.e., zero gross margin),” she writes.

Jankowski estimates Nutanix’s revenues will be $766 million for the next 12 months. Take away those zero-margin hardware sales, and the revenue prediction drops to $545 million.

You’d think that would make for a lower stock price — but wait. Analysts’ target prices for Nutanix are based on comparisons with other hardware companies such as Arista. To carry this analysis out, you’d have to compare Nutanix’s value to software companies — Jankowski picks #VMware, #Splunk, and #Tableau.

Those companies trade at higher levels compared with sales. Arista, for instance, trades enterprise value to sales ratio (EV/S) of about 4. (Enterprise value is roughly the value of a company’s common stock minus the company’s debt and cash.) VMware’s ratio is closer to 13.

Jankowski assigns an EV/S of 13.7 to the imaginary, software-only Nutanix — a bit of a premium to its peers, because of Nutanix’s expected growth. That yields an imaginary per-share value of $43.27.
https://www.sdxcentral.com/articles/news/nutanix-stock-worth-even-without-hardware/2016/10/