According to IDC, sales from hyper-converged systems, which collapse core storage and compute functionality into a single, highly virtualized solution, grew 64.3% to $3.7 billion in 2017, accounting for 34% of the total converged systems market. San Jose-based hyperconverged storage provider Nutanix (Nasdaq NTNX ), which went public in 2016, is at the second place in the hyperconverged systems market 

Nutanix’s Financials

For the third quarter, Nutanix reported revenues of $289.4 million, up 41%. GAAP net loss narrowed to $85.7 million from loss of $96.8 million in Q317. Non-GAAP net loss was $34.6 million or $0.21 per share. Analysts were looking for loss of $0.19 on revenue of $279 million.

By segment, support revenue was up 50% to $68.3 million. Product revenue was up 38% to $221.1 million with software revenue growing 57% to $158.5 million and hardware revenue growing 5% to $62.6 million.

Nutanix added 820 new end-customers during the quarter, taking its total end-customers count to 9,690. Deals greater than $1 million grew by 28%.

Nutanix has been transitioning to a software-defined business model. It grew software and support billings by 67%, including three software and support deals worth more than $5 million each. Pass-through hardware billings decreased to 17% of total billings in the quarter, down from 25% a year ago.

Q3 GAAP gross margin was 67%, up from 59.5% a year ago. Cash and short-term investments were up 164% to $923.5 million.

For the fourth quarter of fiscal 2018, Nutanix expects revenues between $295 and $300 million and non-GAAP net loss per share between $0.20 and $0.22. Analysts were expecting a loss of $0.13 per share on $289 million in revenue.

Nutanix’s New Offerings

Nutanix has introduced three new innovative products for multi-cloud environments:

Nutanix Flow solves customers’ security concerns through a unique application-centric focus combined with native virtual machine (VM) micro-segmentation that protects against internal and external threats. It completes its core infrastructure services offering and provides customers with a software-defined networking solution for the multi-cloud era.

Nutanix Era empowers database administrators to clone, restore, and refresh their databases to any point in time leveraging a virtual time-machine. Copy Data Management, along with other planned offerings from Nutanix Era, enables companies to address the complexity and cost of data sprawl with a sophisticated service that makes complex database operations simple.

Nutanix Beam, which introduces the company’s first SaaS offering to the market, enables IT managers to visualize, predict and manage cost, security, and regulations across multiple clouds. This offering helps application owners with the unexpectedly high costs of their cloud services and the lack of visibility and control of their service consumption.

Nutanix’s Acquisitions

Nutanix recently completed the acquisition of Netsil, a provider of application discovery and operations management that enables state-of-the-art observability in modern distributed cloud environments. It plans to add Netsil’s technology to the Nutanix Enterprise Cloud OS software to help customers secure applications as well as identify and fix performance issues. San Francisco-based Netsil was founded in 2016 by Cam Nguyen, Harjot Gill, Shariq Rizvi, and Tanveer Gill. It had raised $5.7 million in seed funding from Moment Ventures, Engineering Capital, Mayfield Fund, Plug and Play, and StartUp PHL.

In March this year, Nutanix announced its intent to acquire Minjar, maker of cloud management service Bitmetric for an undisclosed sum. Nutanix plans to use Minjar’s technology to bolster its Nutanix Calm automation and lifecycle management product, as well as Xi Cloud Services, a native extension to the Nutanix Enterprise Cloud OS software. Bangalore-based Minjar was founded in 2012 by Anand Anand, Prashant Gyan, and Vijay Rayapati. It was bootstrapped initially and in 2017, it raised $2 million in funding from investors including Blume Ventures and Emergent Ventures along with a few angel investors. 

Nutanix’s Position in the Market

Within the hyperconverged systems market for appliances sold under their own brand, Dell EMC dominates with a 29.6% share, up from 21.6% in the first quarter driven by 142% growth in hyperconverged sales to $363 million. Nutanix was second with 22.2% share, roughly flat year over year with sales jumping 71% to $273 million. Hyperconverged sales for HPE grew 112% to $61 million and its share increased slightly to 5%. Cisco, at number four, saw sales grow 145% to $60 million and its market share climbed from 3.5% in Q1 2017 to 4.9% in Q1 2018.

In the hyperconverged software products market, VMware was at the top with 37.2% share, up from 31.3% in Q1 2017 and sales growing 110% to $456 million. Nutanix was second with a 32.5% share, up from 30.9% share a year ago while software revenues grew 85% to $399 million. HPE had 5%, up from 2.3%, while software sales rose 281% to $61 million. Cisco’s sales grew 145% to $60 million in revenues while its share climbed from 3.5% to 4.9%.

With Nutanix’s shift in business model to software, we might see further consolidation of smaller players.

Its stock is currently trading at $53.75 with a market capitalization of $8.97 billion. Its 52-week range is $18.62 to $64.87. The stock’s current price is a dramatic improvement from the $16 it had listed at in 2016.

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