Pure Storage (PSTG) Posts Narrower-than-Expected Q1 Loss

Pure Storage Inc. (NYSE:PSTG) reported non-GAAP loss (including stock-based compensation) of 30 cents per share in the first-quarter of fiscal 2018, which was narrower than the Zacks Consensus Estimate by 8 cents.

Excluding stock-based compensation, non-GAAP loss narrowed down by 7 cents from the year-ago quarter to 14 cents per share.

Total revenue was $182.6 million, which was up 31% year over year and ahead of the Zacks Consensus Estimate of $176 million. The figure was also 4.4% higher than the mid-point of the guidance. Notably, 80% of the revenues came from the U.S. while the remaining 20% was contributed by other international markets.

Although the narrower loss and revenue beat is positive for Pure Storage, we don’t expect this to have a positive impact on share price in the near term. This is primarily due to intensifying competitive landscape with the presence of major players such as Amazon’s AWS, Microsoft’s (NASDAQ:MSFT) Azure in the cloud storage and NetApp (NASDAQ:NTAP).

We note that shares of the company have underperformed the Zacks Computer- Storage Devices industry on a year-to-date basis. While the industry gained 16.1%, the stock returned 4.3%.

Quarter Details

In the first quarter, Product revenues of $138.4 million surged 23.9% on a year-over-year basis, primarily driven by “strong repeat purchases” by existing and new customers.

Support revenues of $44.2 million increased a massive 56.7% on a year-over-year basis.

During the quarter, Pure Storage added 300 new customers, bringing the total base to 3,350 organizations with nearly 25% of Fortune 500 customers.

Some notable companies that adopted Pure Storage’s technology during the quarter were Black Duck Software, Oppenheimer, Henry Schein (NASDAQ:HSIC) and Securitas Direct.

The storage market is currently going through a rapid transition with the majority of the customers opting for cloud-capable storage for data integrity and predictive analytics. Hence, Pure Storage continues to focus on the combination of its products, FlashArray, FlashStack and FlashBlade. The strong performance and growing adoption rates of these storage solutions have added to the top line of the company.

Nevertheless, the recent launch of FlashArray//X, the company’s first all-NVMe, enterprise-class all-flash array, was not as impactful as expected.

However, management states that the inherent operating leverage of the company has been one of the tailwinds for year-on-year growth. They are particularly positive about the progress in platform selling, with 50% of FlashBlade wins from existing FlashArray customers.

Guidance

Pure Storage expects second-quarter fiscal 2018 revenues in the range of $214–$222 million. Non-GAAP gross margin is anticipated to be in the range of 63.5% to 66.5%. Non-GAAP operating margin is projected to remain in the range of (12%) to (16%). Management is pleased with the second-quarter pipeline, which is likely to lead to 34% year-on-year revenue growth.

Zacks Rank & Stock to Consider

Pure Storage has a Zacks Rank #3 (Hold).

A better-ranked stock in the computer storage devices industry is Quantum Corp. (NYSE:QTM) , sporting Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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