Cloud Stocks: VMware Builds Up With Acquisitions
by Sramana MitraSummary
- VMware's third-quarter revenues grew 12% over the year to $2.46 billion versus the Street estimate of $2.41 billion.
- For the fourth quarter, the company expects license revenue to grow 13% to $1.39 billion and total revenue to grow 13.8% to $2.95 billion.
- VMware continued to execute against its multi-cloud strategy as it expanded its cloud partnerships.
Originally published Dec. 2, 2019
Virtualization giant VMware (NYSE:VMW) recently announced a strong third quarter that beat estimates. Over the past few years, VMware has made several acquisitions that have now been integrated into its portfolio.
VMware's Financials
VMware's third-quarter revenues grew 12% over the year to $2.46 billion versus the Street estimate of $2.41 billion. Non-GAAP EPS was $1.49, ahead of the Street's forecast of $1.41. Net income was $621 million or $1.5 per share compared with $334 million or $0.81 per share a year ago.
By segment, license revenues grew 10% over the year to $974 million and services segment grew 12.6% to $1.48 billion for the quarter. NSX license bookings were up 50%, vSAN license bookings are up over 35% and EUC license bookings once again increased over 20%. Hybrid Cloud and SaaS recurring revenue grew 40% over the year and accounted for over 13% of total revenues.
VMware reported a strong quarter across its product and solutions portfolio with six of its top 10 customers purchasing the VMware Cloud Foundation solution stack. This platform solution consists of the full software-defined data center (SDDC) stack and is offered on private clouds, public clouds as well as partner managed clouds.
For the fourth quarter, the company expects license revenue to grow 13% to $1.39 billion and total revenue to grow 13.8% to $2.95 billion, beating analysts' estimate of $2.92 billion. It expects non-GAAP EPS of $2.16, missing the analysts' forecast of $2.19 per share.
During the quarter, VMware completed its $2.1 billion acquisition of Carbon Black, a leader in cloud-native endpoint protection. Carbon Black will form the nucleus of VMware's security offerings, focusing on helping VMware customers with advanced cyber security protection and in-depth behavioral insights to help stop sophisticated attacks and accelerate response. VMware's Carbon Black Cloud, along with Dell Trusted Devices and Secureworks, is now the preferred endpoint security solution for Dell commercial customers.
For the full year, VMware expects total revenue to grow 12.5% to $10.1 billion, including the addition of Carbon Black's financials. It expects license revenue to grow 12% to $4.245 billion. Non-GAAP EPS is expected to be $6.58.
VMware's New Offerings
During the quarter, VMware launched VMware Tanzu, a new Kubernetes portfolio of products and services focused on Kubernetes. VMware Tanzu Mission Control is a single point of control from which customers will manage all their Kubernetes clusters regardless of where they run. It also includes Project Pacific, which is a technology preview focused on transforming VMware vSphere into a Kubernetes-native platform in a future release. Tanzu is built with Kubernetes technologies from its recent acquisition of Pivotal for $2.7 billion and Heptio for $550 million.
VMware continued to execute against its multi-cloud strategy as it expanded its cloud partnerships. VMware Cloud on AWS is now available in the AWS EU (Stockholm) region, bringing the total number of available global regions in Europe to five, and globally to 17 in just over two years.
VMware announced the continuation of its partnership with Microsoft (NASDAQ:MSFT) with many new technology initiatives. This includes introduction of VMware Workspace ONE for Microsoft Endpoint Manager to enable modern management for Windows 10 and Azure VMware Solutions, the addition of new cloud migration capabilities with VMware HCX and the ability to extend Azure to the branch and edge with VMware SD-WAN by VeloCloud. VeloCloud was acquired in December 2017 for $449 million.
VMware's Carbon Black Cloud, along with Dell Trusted Devices and Secureworks, is now the preferred endpoint security solution for Dell commercial customers.
With the help of the recent acquisitions, VMware is building up its cloud, containers, and security portfolio to sustain its double-digit growth. Its stock is trading at $155.62 with a market capitalization of $63.6 billion. It touched a 52-week high of $206.80 in May this year and a 52-week low of $128.69 in August this year.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.