VMware's shares dip after reporting Q4 and full year results

VMworld
VMware's shares dropped in after-market trading Thursday after reporting its Q4 and full-year results. (FierceTelecom)

Despite hitting the high-water mark of $10 billion in sales for the first time in fiscal year 2020, VMware's shares dropped in after-market trading. After previously closing at $144.27 per share on Wednesday, VMware's shares were down almost 7% to $126.54 per share after the market closed on Thursday.

On the company's fourth quarter and full year fiscal 2020 earnings call, VMware CEO Pat Gelsinger said his company uncharacteristically failed to close several large deals in the fourth quarter, including one "very large deal" that closed one hour after bookings were cut-off. Gelsinger said VMware's focus on closing its $2.7 billion deal to buy Pivotal Software in December was partly to blame for the failure to close some of the deals.

RELATED: VMware sticks a fork in its $2.7B deal to buy Pivotal

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Even without those Q4 deals, VMware 31 deals worth $10 million, which was a record number, in the fourth quarter compared to the 23 the same quarter a year ago.

In the fourth quarter, VMware added a new revenue line, “subscription and SaaS,” which was previously called “hybrid cloud subscription and SaaS.” Subscription and SaaS revenue came to $556 million, which was an increase of 52%. All told, subscription and software-as-a-service (SaaS,) which includes VMware Cloud Provider Program, VMware Cloud on AWS, Pivotal, Carbon Black, CloudHealth Technologies, VeloCloud, Horizon Cloud, Wavefront , AppDefense and other “as-a-service” offerings, accounted for 18% of the total revenue  in the fourth quarter.

VMware posted a net income of 76 cents per share. Earnings, which were adjusted for one-time gains and costs, were $2.05 per share. The average estimate of analysts surveyed by Zack Investment research had projected earnings of $2.16 per share.

VMware's revenue was $3.07 billion, which was increase of 11% from the fourth quarter of fiscal 2019, which just beat Wall Streets projection of $2.95 billion in revenue

For the full fiscal year, VMware's non-GAAP net income was $2.66 billion, or $6.24 per diluted share while revenue came to $10.81 billion, an increase of 12% from fiscal 2019.

RELATED: VMware throws down the gauntlet on Kubernetes with Tanzu platform

Gelsinger said it will take some time to get Pivotal fully integrated into VMware, but the company expects to announce new Tanzu Kubernetes offerings this year along with the first Project Pacific offering. Project Pacific is focused on transforming VMware vSphere into a Kubernetes native platform. Gelsinger said additional details on Tanzu and Project Pacific would be forthcoming.

Gelsinger said that VMware had a 4x increase in the number of nodes for its VMware Cloud on Amazon Web Services (AWS) offering and more customer uptake on the Microsoft Azure and VMware cloud solution on VMware Cloud Foundation.

While Cisco has been struggling with its service provider business over the past year or so, Gelsinger said VMware has found traction with Vodafone, Deutsche Telekom, Telia, Singtel and Telstra for its Telco Cloud platform, according to Gelsinger.

VMware expects adjusted earnings per share of $6.55 for the fiscal year, compared with the $7.03 consensus estimate. VMware said in its guidance that it expects total fiscal year 2021 revenue to be slightly above $12 billion, which would be an 11% year-over-year increase.

Gelsinger and CFO Zane Rowe both cautioned that first quarter results could be impacted by the coronavirus. Rowe said that while it was still "early days" to predict the impact of the coronavirus, it could have a moderate impact on the Asia-Pacific region.

"We're monitoring the situation closely and have not included any further impact for Q1 or for the full year at this time," Rowe said.

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