Nutanix sets stage for IPO

Contact: Scott Denne

Hyperconvergence pioneer Nutanix preps its Wall Street debut with massive revenue growth and equally outsized spending, which is the typical profile for most of the recent IT infrastructure vendors looking to go public. The company’s revenue rose 90% to $241m in its most recent fiscal year (ending July 2015) off the back of a 4x rise in sales a year earlier. The company, which has been selling converged server and storage hardware and software since 2011, has spent generously to achieve that growth. Nutanix posted a $126m loss in fiscal 2015 – up 50% – driven mainly by $162m spent on sales and marketing in the past fiscal year.

Still, Nutanix can at least partly justify the heavy sales and marketing spending as its attempt to satisfy strong demand that potential customers have clearly indicated in recent surveys by 451 Research’s Voice of the Enterprise. In our most recent survey (Q3 2015), 40% of converged infrastructure buyers anticipated their spending to increase in the next 90 days, compared with the 9% who expected to trim spending. Further, that growth is coming as demand weakens for traditional enterprise hardware. In the same survey, only 17% of buyers of standard servers projected spending to increase, while 31% forecast a decrease.

The planned offering from Nutanix comes after a particularly dismal year for tech IPOs, both in terms of the number of offerings and their aftermarket performance. Last year saw just eight enterprise IT startups debut, and half of them were underwater at year-end. Among the ‘Class of 2015,’ Pure Storage is probably the closest comp to Nutanix. The two infrastructure vendors are roughly the same size but have tradeoffs in their respective financial profiles. Pure is growing dramatically faster, while Nutanix loses less money. Still, Wall Street’s muted enthusiasm for Pure does indicate some challenges for Nutanix in increasing its valuation ahead of the $2bn it garnered as a private company in mid-2014.

On the NYSE, Pure is valued slightly below the $3bn it received in its final round of private funding – even though it has more than quadrupled its quarterly revenue level in the 18 months between those events. Pure currently trades at about 6.7x trailing revenue. If Nutanix were to garner that multiple on the $283m in trailing sales it has posted, it would be valued at roughly $1.9bn. Like Pure, that would represent a slight discount to its earlier market value as a private company.

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Posted in IPO