Pivotal Software (PVTL 18.90, +1.10, +6.18%) is trading higher today after reporting Q3
(Oct) results that were better than expected. Pivotal Software offers a
cloud-native platform, called the Pivotal Cloud Foundry (PCF) and it offers
developer tools. A nice aspect about PVTL is that its platform can be
used by a wide variety of industries, which reduces the impact if one part of
the economy gets weak.
The platform streamlines the software development process for its clients by reducing the complexity of building, deploying and operating new cloud-native applications and modernizing legacy applications. This enables its customers' IT staff to spend more time writing code and waste less time on mundane tasks. For example, PVTL reports that time spent on common operational tasks like operating system patching is reduced by over 90%. By reducing the OS patching burden, PVTL has found that these clients are much more likely to quickly apply security remediations.
Cloud-native software is reshaping businesses across many industries, empowering companies to innovate at a higher velocity and become more digital, mobile, data-driven and connected. Despite the widespread availability of private and public cloud infrastructure, many companies are burdened by legacy technologies and software development processes that prevent them from fully realizing the benefits of cloud-native software. Its clients require a modern development process and a cloud-native platform that can be deployed on every major private and public cloud.
Pivotal Software is a recent IPO, having made its debut in April 2018. Its 37 mln share IPO priced at $15 and opened at $16.75. The stock has had its ups and downs and it has been quite volatile around earnings. It jumped higher on Q1 (Apr) results in June then fell sharply on Q2 (Jul) results in early September. And now the stock is higher on Q3 (Oct) results.
The thing to understand here is that many companies remain deeply invested in legacy technologies that differ significantly from cloud-native approaches to software development. They continue to deploy monolithic software built on custom silos of supporting infrastructure. When changes to software become necessary, many manual steps and approvals by different functional teams are required. For a large company with hundreds or thousands of applications, the operational challenges can become daunting.
Turning to the OctQ results, PVTL reported a non-GAAP loss of $(0.05), an improvement from $(0.13) last year and above prior guidance of $(0.09)-(0.08). Revenue rose 30.3% yr/yr to $168.1 mln, which also was above prior guidance of $163-165 mln. PVTL breaks up its revenue into subscription and services.
A key goal for PVTL has been to drive subscription revenue and in OctQ they did a good job as subscription revenue grew much faster than total revenue. Subscription revenue was $100.8 mln, up 53% yr/yr. Looking ahead to Q4 (Jan), PVTL expects a non-GAAP loss of $(0.10)-(0.09), which is in-line with market expectations. Revenue is expected in the $169-171 mln range, which is above market expectations.
In general, demand seems quite good. A good indicator for this is when subscription sales are growing faster than total sales. This tells us they are adding a good amount of new customers while also expanding deeper into current customers. Hopefully, some good quarters can get the stock back on the uptrend.
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