Disclaimer: This blog is personal and reflects the opinions of the author, not necessarily those of Nutanix. It has not been reviewed nor approved by Nutanix.
In a Barron’s blog last week, all flash storage manufacturer Pure Storage’s CEO, Scott Dietzen, made a couple of comments dismissing Nutanix as primarily a VDI & ROBO player that Pure barely encounters. While Nutanix and Pure Storage both were founded in 2009, and both had quarter ends October 31st, each company’s solutions and the numbers behind them are significantly different. Let’s see how Nutanix fared against the AFA storage poster child.
In the Barron’s blog, author Tiernen Ray wrote:
I also asked [Pure Storage CEO] Dietzen about Nutanix (NTNX), which reported yesterday. Said Dietzen, “Pure is competing to be the platform in an area where that hasn’t really been the sweet spot for hyper-converged” equipment, a reference to the common moniker for Nutanix’s merging of compute and storage…”60% of hyper-converged is being used for branch offices and for VDI [Virtual desktop infrastructure.”
The first workload Nutanix supported when launching in December of 2011 was VDI (and Nutanix immediately won the 2011 Best of VMworld Desktop Virtualization Award). But today, VDI only represents a small percentage of Nutanix’s use cases. Nutanix now supports large diverse workloads such as Splunk, Oracle, SAP, SQL Server, and Exchange, among many others, at the world’s largest organizations.
Even though both Pure Storage and Nutanix started around the same time, Nutanix has surpassed Pure Storage in revenues+change in deferred revenues and free cash flow. And this is despite the huge advantage the storage manufacturer has enjoyed in positioning its solution.
Pure Storage has an excellent product (at least, if you want to purchase a SAN – though I don’t know why anyone would want to purchase a SAN today). The storage company needed only convince prospective channel partners and customers that it had a better, faster and more easily managed solution than the “legacy” storage solutions Dietzen references in the Barron’s blog.
Nutanix, on the other hand, has had to build a new industry. It had to both evangelize to, and extensively educate, channel partners and customers about the myriad advantages of eliminating the SANs they knew and loved, and in many cases depended upon for their livelihoods. And once Nutanix succeeded in getting hyperconvergence pretty well established across the industry, the company moved onto the next phase of IT infrastructure disruption: Enterprise Cloud.
Pure Storage’s $197M in revenues last quarter were 18% higher than Nutanix’s, but this does not mean the storage manufacturer is doing better. The comparison is misleading because Nutanix’s sales include a significant, and rapidly increasing, software-only component which is subject to deferred revenue recognition. A much more accurate comparison combines Revenues with Change in Deferred Revenues for both organizations:
Pure Storage: $216M
Another significant indicator is to look at the Year over Year Growth of the Revenues + Change in Deferred Revenues:
Pure Storage: 27% Year over Year Growth
Nutanix: 87% Year over Year Growth
Free Cash Flow
With fast-growing high-technology companies in particular, earnings typically include expenses that may not be particularly indicative of how the company is actually performing. Nutanix’s most recent quarterly earning statement, for example, includes expenses of $90.7M in stock-based compensation, $21M in Change in Fair Value of Convertible Preferred Stock Warrant Liability and another $8.5M in Depreciation and Amortization.
Investors generally consider Free Cash Flow as a better gauge than earnings of a company’s success. Free Cash Flow equates to Operating Cash Flow + Purchases of Property & Equipment. The Free Cash Flow numbers for both organizations last quarter:
Pure Storage: -$66M
To be fair, Pure had a $30M legal settlement with EMC. Let’s remove this huge charge from the storage manufacturer’s cash flow numbers. Here are the recast results vs. Nutanix:
Pure Storage: -$36M
While Pure Storage burned about 4.5 times more cash than Nutanix last quarter (not counting the EMC settlement), we really should compare the results with those from a year ago (Free Cash Flow Year Over Year Change). Again, backing out the EMC settlement, we have:
Pure Storage: -269%
This Year Over Year comparison shows that the Pure Storage burn rate increased by ~ 2.5 times while the (already far lower) Nutanix burn rate was cut in half.
Repeat business is an extremely important metric for ongoing success. Both Pure Storage and Nutanix reported the amount of incremental purchases for their top 25 customers, though Nutanix reported it on a lifetime basis while Pure Storage did it for 18 months.
Pure Storage: $12
Pure also reported the amount of incremental purchases for its overall customers within the first 24 months of initial purchase, while Nutanix reported it for lifetime purchases for customers with Nutanix for at least 18 months. Even with this disadvantage, Nutanix is showing almost twice as much in incremental purchases.
Pure Storage: $2
I haven’t been able to find figures for Global 2000 customers for Pure Storage, but Nutanix is at $7.30 per dollar of initial purchase over the lifetime purchases for its Global 2000 customers.
*Global 2000 list as reported by Forbes. ** Total Lifetime Purchase / Initial Purchase
At the end of last quarter, the relative number of customers for both organizations was:
Pure Storage: 2,600+
The new customers gained last Quarter:
Pure Storage: 300
As this tweet from the Pure Storage EMEA CTO last week shows, Dietzen isn’t the only one at the storage manufacturer who doesn’t grasp the magnitude of the disruption Nutanix has brought to the datacenter. In the Barron’s blog, Dietzen makes an interesting observation about NVMe, saying, “This allows us to deliver much greater performance than “legacy” storage equipment.”
The irony is that, as Matt Watts from NetApp wrote last week, the Pure Storage solution is still very much legacy. Migration to NVMe is going to further accelerate the journey to extinction of all the fabric stretched monoliths – including AFAs.