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Business revenue in the cloud was lower than expected.
Yury Cherenkov / Dreamstime.com
VMware
shares traded lower on Thursday at the end after the enterprise software provider released mixed results for its second fiscal quarter.
For the quarter ended July 30, VMware (ticker: VMW) recorded revenue of $ 3.144 billion, in line with street estimates. But investors may not have liked the component parts.
Licensing revenue, coming from the company’s traditional on-premises software business, was $ 738 million, up 3%, and ahead of the $ 699 million street consensus forecast. But subscription and software revenue as a service, basically the company’s cloud business, amounted to $ 776 million, up 23%, but below the street consensus $ 790 million is demanded.
It is likely that investors would have preferred to see the two items moving in opposite directions, with revenue from the cloud, rather than from the local business, the star.
In an interview with Barron’s, VMware chief financial officer Zane Rowe said the company thought it was a good quarter, but admitted that the subscription and part of the software as a business service was a little lighter than the street had planned. He said some more conservative customers facing renovations, especially in Asia, opted to follow a traditional perpetual licensing model rather than switch to the cloud. But he notes that the company continues to expect the cloud part of the business to represent a growing share of its revenue mix.
As Rowe points out, there are reasons why investors prefer customers to adopt cloud-based versions of their software: it makes revenue more predictable, he says, and tends to facilitate cross-selling of new products.
The company said the remaining performance obligations – a measure of future work – stood at $ 11.2 billion at the end of the quarter, up 8% from the previous year. The company said annualized recurring revenue from subscription and software as a service rose 26 percent to more than $ 3.2 billion.
Non-GAAP-based profits were $ 1.75 per share, ahead of the street consensus, $ 1.64 per share. According to generally accepted accounting principles, the company earned $ 411 million, or 97 cents a share.
VMware is majority owned by Dell Technologies (DELL), which has announced plans to distribute its shares to current Dell owners. VMware said it expects the deal to close in early November. Dell posted better-than-expected results for the quarter this afternoon.
Rowe notes that the company will meet with analysts and investors at the VMworld customer event in October.
VMware had a 6.2% discount to $ 149 in premarket trading.
Write to Eric J. Savitz at [email protected]