Breaking Down Nutanix, Inc. (NTNX) Financial Health: Key Insights for Investors

Understanding Nutanix, Inc. (NTNX) Revenue Streams

Understanding Nutanix, Inc.’s Revenue Streams

For the fiscal year ended July 31, 2024, the total revenue of Nutanix, Inc. reached $2,148,816 thousand, reflecting a year-over-year increase of 15% compared to the previous fiscal year, which was $1,862,895 thousand. For fiscal 2023, the revenue had increased by 18% from fiscal 2022, which reported $1,580,796 thousand.

Breakdown of Primary Revenue Sources

• Product Revenue:
  • Fiscal 2022: $757,623 thousand
  • Fiscal 2023: $912,114 thousand
  • Fiscal 2024: $1,067,948 thousand
  • Year-over-Year Growth (2023-2024): 17%
• Support, Entitlements, and Other Services Revenue:
  • Fiscal 2022: $823,173 thousand
  • Fiscal 2023: $950,781 thousand
  • Fiscal 2024: $1,080,868 thousand
  • Year-over-Year Growth (2023-2024): 14%

Year-over-Year Revenue Growth Rate

Contribution of Different Business Segments to Overall Revenue

In fiscal 2024, the product revenue accounted for approximately 49.7% of the total revenue, while support and services contributed 50.3%. This indicates a slight increase in the product revenue share from 49.0% in fiscal 2023.

Analysis of Significant Changes in Revenue Streams

Notably, subscription revenue has shown significant growth. The subscription revenue for fiscal 2024 was reported at $2,016,776 thousand, up from $1,730,848 thousand in fiscal 2023, marking a growth of 16.5%. This growth is primarily driven by increased adoption of software solutions and higher renewal rates.

The professional services revenue also increased, reaching $100,852 thousand in fiscal 2024 compared to $91,841 thousand in fiscal 2023, reflecting a year-over-year growth of 9.1%.

Overall, the company has demonstrated robust revenue growth across its segments, with substantial contributions from both product sales and service support, indicating a balanced revenue structure that is likely to support future growth.

A Deep Dive into Nutanix, Inc. (NTNX) Profitability

A Deep Dive into Nutanix, Inc.'s Profitability

Gross Profit Margin:

Operating Profit Margin:

Net Profit Margin:

Trends in Profitability Over Time:

• Gross profit increased from $1,259,640 in 2022 to $1,824,704 in 2024, reflecting a growing gross margin from 79.7% to 84.9%.
• Operating loss improved significantly, moving from $(458,852) in 2022 to $7,563 in 2024.
• Net loss decreased from $(798,946) in 2022 to $(124,775) in 2024, showcasing a trend towards profitability.

Comparison of Profitability Ratios with Industry Averages:

Analysis of Operational Efficiency:

• Cost of revenue decreased significantly, contributing to improved gross margins.
• Operational efficiency was highlighted by a reduction in total operating expenses as a percentage of revenue.
• Sales and marketing expenses decreased from 61.9% of total revenue in 2022 to 45.5% in 2024.

Debt vs. Equity: How Nutanix, Inc. (NTNX) Finances Its Growth

Debt vs. Equity: How Nutanix, Inc. Finances Its Growth

As of July 31, 2024, Nutanix, Inc. reported total debt of approximately $1.4 billion. This includes both long-term and short-term debt, reflecting the company's financing strategy to support its growth initiatives.

Breaking down the debt structure:

• Long-term debt: Approximately $1.1 billion
• Short-term debt: Approximately $300 million

The debt-to-equity ratio for Nutanix, Inc. stands at 1.80 as of July 31, 2024. This indicates that for every dollar of equity, the company has $1.80 in debt. This ratio is higher than the industry average, which typically hovers around 1.00 to 1.50 for technology companies, suggesting a more aggressive use of leverage compared to peers.

Recent debt issuances include:

• In September 2021, Nutanix issued $575 million in convertible senior notes due 2027 with an interest rate of 0.25%.
• In June 2024, the company settled $817.6 million of its 2026 Notes through cash payment and equity conversion, which included approximately 16.9 million shares of Class A common stock.

As for credit ratings, Nutanix has a rating of B from Standard & Poor's, indicating a speculative grade. This rating reflects the company's reliance on debt financing, which could be a concern for investors.

To balance its financing strategy, Nutanix utilizes a mix of debt and equity funding. The company has authorized share repurchases of up to $350 million, which can help manage equity levels and provide returns to shareholders without significantly increasing debt levels.

Overall, Nutanix's approach to financing through a combination of debt and equity reflects its strategy to leverage growth while managing financial stability. The company's ability to convert debt into equity, as seen in its recent activity, is a critical component of its financial strategy moving forward.

Assessing Nutanix, Inc. (NTNX) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio is a key indicator of liquidity, measuring the ability to cover short-term liabilities with short-term assets. As of July 31, 2024, the current ratio is calculated as follows:

Current Assets: $655.3 million (cash and cash equivalents) + $339.1 million (short-term investments) + $229.8 million (accounts receivable) = $1.224 billion

Current Liabilities: $551.1 million (total liabilities) as of July 31, 2024.

Current Ratio: $1.224 billion / $551.1 million = 2.22

The quick ratio, which excludes inventory from current assets, is not applicable as the company does not report inventory in its current assets.

Analysis of Working Capital Trends

Working capital is calculated as current assets minus current liabilities. As of July 31, 2024:

Working Capital: $1.224 billion (current assets) - $551.1 million (current liabilities) = $672.9 million

Comparative figures for prior years show:

• July 31, 2023: Working capital was approximately $728.3 million.
• July 31, 2022: Working capital was approximately $597.4 million.

This indicates a downward trend in working capital, reflecting increased liabilities or reduced asset accumulation.

Cash Flow Statements Overview

The cash flow statement provides insights into the cash inflows and outflows from operating, investing, and financing activities over the past fiscal year:

The significant increase in cash from operating activities in 2024 reflects improved operational efficiency and revenue growth.

Potential Liquidity Concerns or Strengths

As of July 31, 2024, liquidity appears strong with a current ratio of 2.22 and substantial cash reserves of $655.3 million. However, the drop in working capital from previous years raises concerns about future liquidity if liabilities continue to increase at a faster rate than asset growth.

Additionally, the net cash provided by operating activities has shown a consistent upward trend, which is a positive indicator for future liquidity. However, the significant cash outflow in financing activities of $1.1 billion in 2024 may impact liquidity if not managed effectively moving forward.

Is Nutanix, Inc. (NTNX) Overvalued or Undervalued?

Valuation Analysis

To assess whether Nutanix, Inc. is overvalued or undervalued, we will analyze key valuation ratios, stock trends, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The P/E ratio for Nutanix, Inc. is approximately 29.3 based on the latest earnings report. This indicates how much investors are willing to pay per dollar of earnings.

Price-to-Book (P/B) Ratio

The P/B ratio stands at 6.5, suggesting a premium over the book value of the company's equity.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is currently calculated at 21.8, providing insight into the company's valuation relative to its earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

Over the past 12 months, the stock price has shown significant movement:

Dividend Yield and Payout Ratios

Nutanix does not currently pay a dividend, indicating that the company is reinvesting its earnings for growth rather than returning capital to shareholders.

Analyst Consensus on Stock Valuation

The consensus among analysts is as follows:

As of July 31, 2024, the company's financial performance metrics are as follows:

Key Risks Facing Nutanix, Inc. (NTNX)

Key Risks Facing Nutanix, Inc.

Several internal and external risk factors impact the financial health of the company, including:

• Industry Competition: The competitive landscape in cloud computing and enterprise software is intense, with numerous players vying for market share. The company faces competition from established firms like VMware, Microsoft, and Amazon Web Services.
• Regulatory Changes: Changes in data protection regulations and compliance requirements could impose additional costs and operational challenges.
• Market Conditions: Economic downturns or shifts in technology trends could negatively impact demand for the company’s products and services.

Operational Risks

Operational risks highlighted in recent earnings reports include:

• Dependence on channel partners for sales, which can impact revenue if partner relationships deteriorate.
• Challenges in scaling operations to meet growing demand, particularly in international markets.

Financial Risks

Financial risks include:

• Debt Obligations: As of July 31, 2024, the company had a valuation allowance for deferred tax assets of $1.2 billion.
• Cash Flow: Net cash provided by operating activities was $672.9 million in fiscal 2024, reflecting a significant improvement from previous years.

Strategic Risks

Strategic risks noted in recent filings include:

• Potential difficulties in executing growth strategies and achieving profitability.
• Market perception and brand strength can be affected by product performance and customer satisfaction.

Mitigation Strategies

The company has implemented various strategies to mitigate risks:

• Investing in research and development to enhance product offerings and maintain competitive advantage.
• Establishing strong partnerships and diversifying sales channels to reduce dependency on any single source of revenue.

Future Growth Prospects for Nutanix, Inc. (NTNX)

Future Growth Prospects for Nutanix, Inc. (NTNX)

Analysis of Key Growth Drivers

The company is focusing on several growth drivers, including product innovations, market expansions, and strategic acquisitions. In fiscal year 2024, total revenue reached $2,148.8 million, reflecting a year-over-year growth of 15.3%.

Product Innovations

Product revenue increased significantly, with software revenue showing robust growth due to heightened adoption and renewal rates. Specifically, term-based license revenue grew by approximately 20% year-over-year for fiscal 2024.

Market Expansions

The company has been actively expanding its presence in various geographical markets. Revenue from the U.S. was $1,189.2 million in fiscal 2024, while Europe, the Middle East, and Africa contributed $563.3 million, marking a 19% increase.

Acquisitions

Recent acquisitions have bolstered the company's service offerings. Notably, cash used for acquisitions was $4.5 million in fiscal 2024.

Future Revenue Growth Projections and Earnings Estimates

Projected revenue growth for fiscal year 2025 is estimated at 12% to 15%, with earnings per share projected to improve significantly, reflecting operational efficiencies and increased market share.

Strategic Initiatives or Partnerships

The company continues to forge strategic partnerships to enhance its market offerings. These collaborations are expected to drive future growth, with a focus on cloud-based solutions and service integration.

Competitive Advantages

The company benefits from a strong competitive position in the cloud services market, underpinned by a gross margin of 84.9% for fiscal 2024, up from 82.2% in fiscal 2023. This improvement is attributed to cost management and operational efficiencies.

As of July 31, 2024, the company reported a total of 26,530 end customers, an increase from 24,550 in the previous fiscal year.

Conclusion

With a robust pipeline of product innovations, strategic market expansions, and a strong competitive advantage, the company is well-positioned to capitalize on future growth opportunities.