Nimble Storage (NMBL) Reports Miss Driven by Competitive Dynamics; Summit Research Cuts Price Target to $22
Summit Research maintained a Buy rating on Nimble Storage (NYSE: NMBL), and cut the price target to $22.00 (from $40.00), following the company's 3Q earnings report. Nimble reported numbers that were well below both guidance and consensus. The miss was driven by incumbent price competition in the enterprise segment and prior lower investment in the commercial segment leading to its slower growth. Based on conversations with the company’s management on why the company insists on investing in the enterprise, the company noted that for every dollar in the initial revenue, repeat revenue will be in the $1.50 to $2.00 range while for the commercial segment, it is only $0.45-0.50 in additional revenue.
Analyst Srini Nandury commented, "Nimble reported F3Q16 numbers that were well below guidance/consensus, driven by incumbent price competition in the enterprise segment and prior lower investment in the commercial segment leading to its slower growth. Incumbents such as NetApp, EMC, IBM and HP Enterprise are using pricing as a lever to protect their install bases and we expect the competition to intensify for the next few quarters. From what we heard on both NetApp and Nimble calls, the large incumbents are pricing the storage boxes at cost in the hope of locking in long term maintenance revenue streams. Incumbents are using pricing in the most strategic accounts, essentially foreclosing growth for Nimble for the long term. So this has to have an impact on the growth of the company going forward, since Nimble would have to fight hard on every major strategic account. Recognizing this uphill struggle it faces in the enterprise accounts, the company wisely wants to invest aggressively in the commercial segment of its business, while it continues to invest in the enterprise segment for longer term growth. Therefore, the company for a time will not be profitable until its newly hired sales people become profitable. Therefore, we expect the growth to slow for next few quarters and then reaccelerate from then on. Given our belief that Nimble has a solid product line, the significant pullback in the stock, and the better than a 50% chance of getting acquired in our view, we maintain our BUY rating on the stock but lower our PT to $22 (down from our prior of $40)."
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Shares of Nimble Storage closed at $20.39 yesterday.