Enterprise cloud computing player Nutanix (Nasdaq: NTNX) has had a roller coaster year so far. The stock has lost nearly 40% in value since the start of the year. It has been transitioning to a subscription-based model, but the path has not been easy. The recently reported quarterly results surpassed market expectations and helped the stock climb a bit.

Nutanix’s Financials

For the fourth quarter of the year, revenues fell from $303.7 million a year ago to $299.9 million. The decline was attributed to the reduction of pass-thru hardware revenue in the quarter and the impact of the continued transition to a subscription-based billing model. Billings also fell 6% over the year to $371.7 million. Net loss was $194.3 million, compared with a loss of $87.4 million reported a year ago. On an adjusted basis, loss was $0.57 per share compared with a net loss of $0.11 per share a year ago. The market was looking for revenues of $293.86 million for the quarter with an adjusted loss of $0.64 per share.

By segment, Nutanix’s Product revenues declined 17% to $186.3 million while revenues from support, entitlements and other services grew 44% to $113.5 million.

Software and support revenues grew 7% over the year to $286.9 million. Billings for the segment were marginally down to $358.7 million. Subscriptions accounted for 52% of its total billings for the quarter. It ended the quarter with 14,180 end-customers, adding 990 new customers in the quarter.

Nutanix ended the year with revenues of $1.24 billion and a net loss of $621.2 million. On an adjusted basis, net loss was $1.51 per share.

For the third quarter, Nutanix forecast software and support revenues of $290-$300 million, billings of $360-$370 million, and net loss of $0.75 per share. The market was looking for a loss of $0.64 per share for the quarter.

Nutanix’s Market Expansion

Nutanix recently announced that its Xi Government cloud was listed in the FedRAMP marketplace as FedRAMP in process. The FedRAMP status will allow Nutanix to bid for and be selected by federal agencies. The expansion is currently in process, but it is a significant step towards a full FedRAMP model authorization. The Nutanix Xi Government Cloud is a Government Community Cloud that includes Xi Frame, a desktop-as-a-service platform built for cloud deployment that is operated and managed in the US AWS and Azure Government regions, and Xi Beam, a multi-cloud cost optimization and governance tool. The Cloud has been built with a focus on the government sector and allows workload placement decisions to be made for some of the most sensitive US government workloads.

Besides gearing up for presence in the government sector, Nutanix has also been driving product enhancement for the enterprise segment. Earlier this year, it announced the general availability of its Certified Kubernetes solution, Nutanix Karbon. Karbon is part of the Nutanix Cloud Native stack that will allow Nutanix customers to develop and run both virtual machines and container-based applications on-premises. It will provide organizations with access to a production-ready Certified Kubernetes distribution that simplifies the provisioning, operations and lifecycle management of Kubernetes.

Nutanix’s Container Storage Interface (CSI) and Volumes & Files products will offer high-performance storage to Kubernetes and Nutanix Buckets will offer a software-defined object storage solution that will be able to non-disruptively scale-out while lowering overall costs. For monitoring, the service will come with Nutanix Xi Epoch, that will provide customers with end-to-end real-time visibility into distributed application architecture.

According to IDC, the global container infrastructure software market is estimated to grow from $131.1 million in 2017 to $1.55 billion in 2022. The majority of this growth is expected to come from on-premise deployments. Nutanix is targeting this market with the release of its Kubernetes offering.

The recent slowdown in Nutanix’s revenues is attributed to the transition to the subscription-based model. It is a short-term impact of the strategy and, in the longer run, the company should benefit from the transition. Its stock is currently trading at $25.60 with a market capitalization of $4.8 billion. It has fallen from the year high of $54.68 that it was trading at in February this year. The stock has recovered from the year low of $17.74 that it had fallen to in August this year.