VMware’s fiscal 1Q18 results

So far in this series, we’ve discussed VMware’s (VMW) new updates and its strategic deal with Microsoft (MSFT). Ideally, this news should have provided a stimulus to VMware stock.

However, in the last week, VMware stock has fallen more than 30%. This fall is perplexing because VMware, which announced its fiscal 1Q18 earnings results on June 1, 2017, beat analysts’ expectations in terms of both revenue and EPS (earnings per share). Moreover, the company raised its guidance for fiscal 2018.

Why VMware Stock Fell despite Beating Fiscal 1Q18 Expectations

VMware reported revenue of $1.7 billion and non-GAAP (generally accepted accounting principles) EPS of $0.99 in fiscal 1Q18, beating analysts’ expectations by $30 million and $0.04 per share, respectively. Its revenue and EPS rose 9.4% and 15%, respectively, in fiscal 1Q18.

Improved fiscal 2018 guidance

VMware also raised its fiscal 2018 revenue and EPS forecasts to $7.61 billion and $4.91, respectively, as the chart above shows, compared to its previous $7.57 billion and $4.87 forecasts, respectively.

Fiscal 1Q18 billings failed to meet analysts’ expectations

However, VMware’s fiscal 1Q18 billings of $1.4 billion were far lower than analysts’ consensus expectation of $1.6 billion. Billings indicate future revenue that has yet to become visible on a company’s income statement. Industry analysts keep a watchful eye on billings growth, as it gives them an indication of a company’s future revenue.

You can consider investing in the SPDR S&P 500 ETF (SPY) (SPX) to gain exposure to the technology sector. This ETF invests ~8.4% of its holdings in the application software space.

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