It has been about a month since the last earnings report for VMware (VMW). Shares have added about 7.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is VMware due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
VMware Q4 Earnings Beat Estimates, Revenues Rise Y/Y
VMware’s fourth-quarter fiscal 2021 non-GAAP earnings of $2.21 per share beat the Zacks Consensus Estimate by 7.8% and also grew year over year by the same percentage.
Moreover, revenues of $3.29 billion surpassed the consensus mark by 1.9% and also improved 7.2% on a year-over-year basis.
Top-Line Details
Region-wise, U.S. revenues (48.9% of revenues) increased 2.6% year over year to $1.61 billion. International revenues (51.1%) grew 12% from the year-ago quarter to $1.68 billion.
Services revenues (47.8% of revenues) rose 6.1% year over year to $1.57 billion. Software Maintenance revenues (83.1% of Services revenues) climbed 5.8% to $1.31 billion. Professional Services revenues (16.9% of Services revenues) were $266 million, up 7.3% year over year.
Total License and Subscription & SaaS revenues (52.2% of revenues) improved 8.2% from the year-ago quarter to $1.72 billion.
License revenues (58.9% of License and Subscription & SaaS revenues) declined 1.9% year over year to $1.01 billion.
Subscription & SaaS revenues (41.1% of segment revenues) increased 27.2% year over year to $707 million, driven by strong growth in VCPP, EUC, CarbonBlack and VMC on AWS.
At the end of the fourth quarter, ARR for Subscription & SaaS was $2.9 billion, up 27% from the year-ago quarter.
During the reported quarter, the company closed a record 35 deals, worth more than $10 million.
Operating Details
Research & development (R&D) expenses as a percentage of revenues increased 140 basis points (bps) year over year to 19.1%.
However, sales & marketing (S&M) expenses as a percentage of revenues decreased 180 bps on a year-over-year basis to 26.8%.
Moreover, general & administrative (G&A) expenses as a percentage of revenues decreased 90 bps to 5.7%.
Non-GAAP operating margin expanded 10 bps on a year-over-year basis to 34.4% in the reported quarter, driven by lower spending.
Balance Sheet & Cash Flow
As of Jan 29, 2021, cash & cash equivalents were $4.72 billion compared with $3.90 billion as of Oct 30, 2020.
Total debt as of Jan 29, 2021, unchanged sequentially.
Operating cash flow was $1.3 billion compared with $992 million reported in the previous quarter.
Free cash flow was $1.2 billion compared with $908 million reported in the previous quarter.
Revenue Performance Obligation increased 10% year over year to $11.3 billion.
Key Q4 Highlights
During the reported quarter, VMware Workspace ONE Access achieved FedRAMP Moderate Authorization.
The company also announced a partnership with Dell Technologies and SK Telecom to develop a multi-access edge-computing solution that brings together private 5G and edge-computing capabilities.
Additionally, the company announced the commercial availability of VMware Blockchain, an extensible and scalable enterprise-grade platform to build business networks and deploy business-critical decentralized applications.
VMware also announced the expansion of its partnership with Accenture in the reported quarter.
Guidance
For first-quarter fiscal 2022, VMware expects revenues of roughly $2.90 billion, suggesting 6% year-over-year growth. Subscription & SaaS and License revenues are expected to be $1.3 billion, indicating nearly 7% growth year over year.
Non-GAAP operating margin is anticipated to be 27.5%. Moreover, non-GAAP earnings are expected to be $1.49 per share for first quarter fiscal 2022.
For fiscal 2022, VMware expects revenues of roughly $12.70 billion, suggesting 8% year-over-year growth.
Subscription & SaaS and License revenues are expected to be $6.3 billion, indicating nearly 12% growth year over year.
Non-GAAP operating margin is anticipated to be 28%. Moreover, non-GAAP earnings are expected to be $6.68 per share for fiscal 2022.
Further, cash flow from operations, capital expenditure and free cash flow are expected to be $3.8 billion, $380 million and $3.4 billion, respectively.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -5.94% due to these changes.
VGM Scores
Currently, VMware has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
VMware has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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