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Pure Storage Stock Rose despite Poor Guidance


Aug. 22 2019, Published 1:28 p.m. ET

Pure Storage (PSTG) shares have risen more than 15% on Thursday.

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Pure Storage reported poor guidance

The company announced its results for the second quarter of fiscal 2020 after the markets closed on Wednesday.

Pure Storage reported sales of $396.3 million for the second quarter—up 28% year-over-year. Notably, the adjusted EPS was $0.01. Analysts expected Pure Storage to post revenues of $393 million and an EPS of -$0.04 in the second quarter.

Although Pure Storage beat analysts’ estimates in the second quarter, the company reduced its guidance for fiscal 2020. The company expects sales between $1.645 billion and $1.715 billion in 2020—down from its earlier sales forecast of $1.7 billion–$1.77 billion. Pure Storage reduced the guidance after its first earnings call in May.

Pure Storage expects sales between $434 million and $446 million in the third quarter. Analysts expected the company to post revenues of $466.3 million in the third quarter and $1.73 billion in fiscal 2020.

The company also announced the resignation of CFO Tim Ritters during the earnings call. Overall, the events drove Pure Storage stock 10% lower in after-hours trading on Wednesday. The stock has come roaring back in early market trading on Thursday.

In contrast, Splunk (SPLK) beat analysts’ second-quarter estimates on Wednesday. Splunk also raised its revenue outlook and provided guidance above analysts’ estimates. Although Splunk gained in after-hours trading on Wednesday, it has fallen 10% on Thursday.

Key metrics in the second quarter

Pure Storage’s deferred revenues rose 47% to $607.3 million. The deferred revenues were $413.2 million in the second quarter and $297.2 million in the second quarter of 2018.

The company managed to add 450 customers in the second quarter—the highest ever in the second quarter. Now, Pure Storage’s customer base is 6,600. The customer base increased 28% in the second quarter. Over 40% of the Fortune 500 companies are Pure Storage customers.

The company’s CEO, Charles Giancarlo, said, “Our significant growth this quarter and continued market share gains are the result of creating a modern data experience for our customers. Pure frees enterprises to leverage their data rather than locking it away.”

Pure Storage claimed that the beta version of its subscription-based product, Cloud Block Store, has been oversubscribed. The response has been encouraging.

Market opportunity

Investors are betting on Pure Storage due to its huge addressable market. The company expects the total addressable market at $50 billion. Notably, the company valued the Cloud Storage market at $6 billion, the Storage Software market at $16 billion, the Server Storage Market at $4 billion, and the Shared Storage market at $26 billion.

The company will be growing sales at over 20% annually over the next three years. The company continues to outpace the external enterprise storage systems market. According to the IDC, Pure Storage’s sales rose 22.4% in the first quarter. In comparison, the revenues in the market rose 5% in the first quarter. The company has a market share of 4.2% in this segment.

The other major players include Dell Technologies, NetApp, Hewlett Packard Enterprise, Hitachi, and IBM with market shares of 34.4%, 13%, 10.9%, 6.6%, and 4.7%, respectively.

The company might also be GAAP profitable by the end of fiscal 2023. The earnings are estimated to grow at an annual rate of 27.5% in the next five years. The shares have underperformed the market since its IPO in October 2015.

The stock is trading at $15.9, which is below its IPO price of $16. Pure Storage shares fell 50% between September 2018 and August 2019. Analysts have a 12-month target price of $21.8, which indicates an upside potential of 36% from the current price.


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