Pure Storage shares tumbled after the enterprise storage company provided disappointing guidance for its fiscal fourth quarter ending in January.
Business Model Transition and Delayed Order Impact Performance
The company attributed the miss to a combination of a business model transition and the delayed fulfillment of a large customer order.
Financial Performance for October Quarter
The results for the October quarter were solid. Pure Storage posted revenue of $762.8 million, representing a 13% increase from the previous year. This figure slightly exceeded both the company’s forecast of $760 million and the Street consensus of $761 million. Non-GAAP operating income also surpassed expectations, reaching $169.1 million compared to the forecast of $135 million. Adjusted earnings per share stood at 50 cents, exceeding consensus by ten cents. Under generally accepted accounting principles, the company reported earnings of 21 cents per share.
Concerns Over Guidance
The primary concern for investors lies in the guidance provided by Pure Storage. The company expects January quarter revenue to reach $782 million, a 3.5% decline from the previous year. This figure falls well below the consensus estimate of $919 million. Furthermore, non-GAAP operating income for the quarter is projected to be $150 million, lower than the Street’s expectation of $199 million.
Full-Year Outlook
For the fiscal year ending in January, Pure Storage now anticipates revenue of $2.82 billion, reflecting a 2.5% increase. This forecast falls short of the Street consensus of $2.96 billion. Additionally, the company slightly raised its full-year estimate for non-GAAP operating margin to 16%, up from 15.7%.
The Future of Pure: Exploring New Frontiers in Storage-as-a-Service
Innovative Approach and Unforeseen Challenges Shape Pure’s Outlook
In a recent earnings conference call, leading tech company Pure shed light on two key factors influencing its January quarter guidance. These insights provide a glimpse into the company’s ongoing transformation towards storage-as-a-service, which has both promising prospects and unanticipated hurdles.
One crucial element driving Pure’s guidance revision is the unexpectedly high adoption rate of its storage-as-a-service offering. While this marks a significant milestone for the company, it also means a reduction in upfront revenue compared to its traditional business model. Initially, Pure anticipated a 1 to 2 percentage point decrease in revenue due to this transition. However, the latest estimates indicate a more substantial impact, with a projected 3-point reduction.
Additionally, Pure’s outlook took a hit when a $41 million telco product order was delayed and is now anticipated to be fulfilled in the fiscal year of January 2025. This delay contributes to the adjusted guidance for the January quarter.
CEO Charlie Giancarlo highlights that subscriptions now account for an impressive 41% of Pure’s total revenue. This shift towards subscription-based services not only enables smoother reported revenue but also entails a decrease in immediate recognition. While this transition is commonplace among software companies, it poses a unique challenge for Pure, primarily known for its hardware sales.
Giancarlo acknowledges the uphill battle of explaining this strategic shift to a predominantly hardware-focused analyst base. Although this change does not reflect any shifts in customer demand, effectively communicating this paradigm shift remains a priority for Pure’s leadership.
When questioned about the macroeconomic outlook, Giancarlo describes stable conditions during the quarter, with no significant improvement or deterioration. However, he emphasizes that customers continue to exercise caution in their expenditure decisions—an attitude that has become a prevailing trend.
In summary, Pure’s journey towards storage-as-a-service is a game-changer for the company’s future. While challenges arise, the potential rewards of this paradigm shift are undeniable. As Pure adapts to this new landscape, one thing remains certain—they are at the forefront of innovation in the tech industry.
