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Defying 2016 Outlook, VMware’s 1Q16 Results Beat Analyst Estimates

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VMW’s fiscal 1Q16 results exceed analysts’ expectations

After technology players like IBM (IBM) and SAP (SAP) announced their recent earnings in April 2016, it was VMware’s (VMW) turn. VMware reported revenues of $1.6 billion and non-GAAP (generally accepted accounting principles) EPS (earnings per share) of $0.86 in fiscal 1Q16, which beat analyst expectations by $10 million and $0.02 per share, respectively.

The market appreciated VMW’s fiscal 1Q16 results more than its fiscal 2015 earnings, which provided weak 2016 guidance due to the distractions posed by the impending Dell-EMC (EMC) deal. EMC controls an 80% stake and 97% of the voting rights in VMware.

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VMware’s segment performance

The chart above shows the revenue contributions of VMW’s operating segments in fiscal 1Q16. Licensing and services revenues contributed close to 36% and 64%, respectively, towards overall revenues in 2015.
In fiscal 1Q16, licensing revenues fell 1% to $572 million in fiscal 1Q16. Also, its contribution to overall revenues fell from 41% in fiscal 2015 to 36% in fiscal 1Q16. In constant currency terms, license revenue grew 1% in 1Q16. Service revenues grew 8.7% to $1.0 billion in fiscal 1Q16.

Investors who want to gain exposure to the technology sector can consider investing in the Technology Select Sector SPDR Fund (XLK). XLK invests 35% of its holdings in application software.

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