Summary
The lock-up expiration for Nutanix is set for March 29, 2017.
After the lock-up period expires, Nutanix is expected to offer more shares in a secondary offering, which could amplify price pressure with an oversupply.
We predict pre-IPO insiders will be eager sell shares once restrictions are lifted.
Our firm has found price declines in the days (-11, +9) surrounding a few select lock-up expiration events (day 0).
Event Summary
The lock-up period is a restriction that prevents major pre-IPO shareholders, such as venture capitalists, employees, managers, owners, and company founders from selling immediately after the IPO.
The restriction usually lasts 180 days after the company goes public. The 180-day lock-up period for Nutanix (NASDAQ:NTNX ) is scheduled to expire on March 29, 2017. Currently, 122.4M shares are restricted from trading. This represents 89.7% of the total shares outstanding.
(S-1/A)
Although Nutanix was arguably one of the hottest IPOs of 2016 and performed strongly in its market debut, the stock recently took a tumble. The stock reached a high of $46.78 and is now trading for less than half of that. The strong early performance and possible fear that a recent downward trend could continue could push pre-IPO shareholders to sell shares once restrictions are lifted. We therefore recommend investors sell off short shares before pre-IPO shareholders have the opportunity to on March 29, 2017.
Our firm has found that movement around lock-up period expirations is strongest when a large percentage of total shares outstanding are restricted, when the company has performed well its IPO, and when outside investors hold a significant portion of the restricted shares. Nutanix fits all three criteria. The stock is up significantly since its IPO and its pre-IPO shareholders include six PE/VC investors (see below), who hold an aggregate of 52.9% of total shares outstanding. We predict these outside investors will be eager to cash in on gains, as well as free up capital for other investments.
(S-1/A)
Company Background
San Jose, California-based Nutanix offers cloud-based, enterprise-level services that integrate the traditional IT components of visualization, storage and server into a single product. The company's portfolio includes Acropolis, which delivers performance distributed storage and application mobility solutions. Nutanix also offers Prism, which delivers one-click administration solutions, operational analytics and integrated infrastructure and virtualization management.
The company's products address a significant number of applications, including telecommunications, technology, healthcare, retail, manufacturing, financial services, media, consumer goods, energy, education and automotive. Nutanix's diverse, broad client base includes well-known corporations such as Best Buy, Nordstrom, Nintendo, Toyota Motor of North America and the U.S. Department of Defense Office of the Secretary of Defense.
Management Overview
Dheeraj Pandey co-founded the company and has served as Chief Executive Officer and Chairman, since the company's inception in September 2009. His previous experience includes: Vice President of Engineering (Feb 2009 - Sept 2009) and Director of Engineering (Sept 2007 - Feb 2009) at Aster Data Systems, a data management and analysis software company. Mr. Pandey holds a B. Tech. in Computer Science from the Indian Institute of Technology, and a M.S. in Computer Science from the University of Texas at Austin and was a Graduate Fellow of Computer Science in the Ph.D. program at the University of Texas at Austin.
Duston M. Williams serves as Chief Financial Officer. Prior to joining Nutanix in June 2014, Mr. Williams served as Chief Financial Officer (Mar 2012 - June 2014) for Gigamon Inc., a network security company; Chief Financial Officer (Mar 2011 - Jan 2012) for SandForce, Inc., a data storage company, and Chief Financial Officer (Jul 2010 - Feb 2011) of Soraa, Inc., a solid state lighting company. He currently serves on the board of directors of Applied Micro Circuits Corporation, a fabless semiconductor company. Mr. Williams holds a B.S. in Accounting from Bentley College and an M.B.A. from the University of Southern California.
Recent IPO Performance and Financial Highlights
Nutanix went public on Sept. 29, 2016, after much hype and excitement from investors. Due to strong demand, the company priced a larger share offering above an already upwardly revised range. Shares priced at $16, then increased over 131% on the first day, to finish the day at $37 per share. Despite this strong start, shares have been drifting downward and took a sharp drop in March after providing weak Q3 guidance. Shares fell 27% on the earnings report and are currently trading around $21.00.
The company reported earnings on March 2nd, and the stock price fell immediately on disappointing guidance for the following quarter. For Q32017, Nutanix gave revenue projections of $180M - $190M, (versus analysts' consensus of 188.45M) and provided EPS guidance of a net loss of -$0.45 - -$0.48, (versus analysts' consensus of -$0.35).
Conclusion: Sell, or Short Opportunity For Experienced Investors
Nutanix is still up 25% from its IPO price, even after dropping significantly post its earnings report.
We predict pre-IPO investors will be eager to cash in on gains once restrictions are lifted, particularly given the negative guidance Nutanix gave for future earnings and fear of future share price dip.
As noted previously, pre-IPO shareholders hold 89.7% of total shares outstanding. If these shareholders sell even of a portion of their shares after March 29 it could have a significant impact on share price.
We therefore, recommend investors sell off short prior of March 29.
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