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How BofA Merrill Lynch Views VMware’s Growth

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BofA Merrill Lynch verdict on VMware’s prospects

Earlier in this series, we discussed VMware’s (VMW) billings performance as well as its overall financial performance. After the announcement of its fiscal 4Q18 results, citing BofA Merrill Lynch analyst Kash Rangan’s opinion of the company’s ability to sustain its double-digit growth, StreetInsider wrote:

  • “improving business mix: compute was 35% of license bookings in 4Q vs 50% a couple of years ago”
  • “NSX, EUC, vSAN are in hyper-growth mode while management and compute are getting better, resulting in inflection point driving accelerating revenues despite tougher comps” Earlier in the series, we discussed how these offering could be instrumental in the sustenance of VMware’s double-digit growth.”
  • “VMC (VMware cloud on AWS) is not factored into street estimates, which offers long-term upside” VMware cloud on AWS is a result offering of VMware’s partnership with Amazon (AMZN). According to the RightScale 2018 State of the Cloud report, VMware Cloud on AWS was used by 8% respondents, a strong adoption considering its first year of availability, as the chart below shows.
  • “FCF margins up to 37% in FY18 vs two years ago at 23% on more larger and longer deals as VMware has re-asserted strategic importance.” VMware adopted Dell’s financial calendar in 2017 and moved from fiscal 2016 to fiscal 2018.

 

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Fiscal 1Q19 and 2019 expectations

For fiscal 1Q19, VMware expects revenues and non-GAAP (generally accepted accounting principles) earnings per share (or EPS) to be ~$2.0 billion and $1.14, respectively. VMware’s guidance exceeded analysts’ expectations, which expected the company to post revenues and non-GAAP EPS of ~$1.9 billion and $1.08, respectively.

For fiscal 2019, VMware expects revenues and non-GAAP EPS to be $8.73 billion and $6.02, respectively. VMware’s guidance exceeded analysts’ expectations for the company to post revenues and non-GAAP EPS of $8.66 billion and $5.57, respectively.

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