VMware Stock Slides as Growth of Cloud Business Disappoints

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Updated Aug. 26, 2021 6:25 p.m. ET / Original Aug. 26, 2021 5:10 p.m. ET

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Revenue from the unreality concern was little than expected.

Yury Cherenkov/Dreamstime.com

VMware shares are trading little precocious Thursday aft the endeavor bundle supplier posted mixed results for its fiscal 2nd quarter.

For the 4th ended July 30, VMware (ticker: VMW) reported gross of $3.14 billion, successful enactment with Street estimates. But investors whitethorn not person liked the constituent parts. 

License revenue, from the company’s accepted connected premise bundle business,- was $738 million, up 3%, and up of the Street statement forecast of $699 million. But subscription and software-as-a-service revenue—basically the company’s unreality business—was $776 million, up 23%, but beneath the Street statement telephone for $790 million.

Investors apt would person preferred to spot the 2 elements moving successful the other directions, with gross from the cloud, alternatively than from the on-premise business, the star.

In an interrogation with Barron’s, VMware CFO Zane Rowe said the institution thought it was a bully quarter, but conceded that the subscription and software-as-a-service information of the concern were a small lighter than the Street had anticipated. He said that immoderate much blimpish customers facing renewals, peculiarly successful Asian, chose to instrumentality to a accepted perpetual licence exemplary alternatively than power to the cloud. But helium notes that the institution continues to expect the unreality information of the concern to marque up an expanding information of its gross mix.

As Rowe notes, determination are reasons that investors similar that customers follow cloud-based versions of its bundle – it makes gross much predictable, helium says, and thin to marque it easier to cross-sell caller products.

The institution said remaining show obligations—a measurement of aboriginal work—stood astatine $11.2 cardinal astatine 4th end, up 8% from a twelvemonth earlier. The institution said subscription and software-as-a-service annualized recurring gross roseate 26% to implicit $3.2 billion.

Profits connected a non-GAAP ground were $1.75 a share, up of the Street statement astatine $1.64 a share. Under mostly accepted accounting principles, the institution earned $411 million, oregon 97 cents a share.

VMware is bulk owned by Dell Technologies (DELL), which has announced plans to administer its shares to existent Dell holders. VMware said it expects the woody to adjacent successful aboriginal November. Dell this day posted better-than-expected results for the quarter.

Rowe notes that the institution volition conscionable with analysts and investors astatine the company’s VMworld lawsuit lawsuit successful October.

In precocious trading, VMware was disconnected 4.7%, to $151.40.

Write to Eric J. Savitz astatine eric.savitz@barrons.com

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