VMware Reports Positive Q3 Earnings, Robust Outlook For 2016
VMware (NYSE:VMW) announced its Q2 results on Monday, July 18, reporting an 11% annual growth in revenues to just under $1.7 billion. [1] The company observed strong growth in its operating income and net income on a GAAP basis, primarily due to the negative impact of the GSA settlement case in Q2 of last year. However, on a non-GAAP basis, VMware’s growth in revenue stood at around 6%, which was roughly in line with the company’s guidance given at the end of the March quarter. [2] The table below highlights some key financial metrics for the company for the June quarter.
Following the trend observed over the last few quarters, VMware’s top line growth was mainly driven by maintenance and services revenues rather than software license sales. However, the software licenses division contributed meaningfully to improvement in company-wide gross margins as evidenced in the table below.
VMware witnessed strong growth from network virtualization, hybrid cloud computing and Software-as-a-Service (SaaS) offerings – a trend consistent over the last couple of years. VMware’s network virtualization platform NSX had 1700 paying customers by the end of Q2, up from 1400 at the end of March and 700 at the end of June last year. VMware has built on these strengths to continue its growth spree in these domains. VMware further announced its intent to acquire cyber security and software-defined data center operations company Arkin Net during Q2 to help customers adopt its NSX platform faster. [3] Additionally, the number of Virtual SAN customers increased to 5000, up from 3500 at the end of Q1 and 2000 at the end of Q2 of last year. VMware also reported that combined revenues of hybrid cloud and SaaS offerings were up to 8% of net revenues, up from only 6% of net revenues in the comparable prior year period. This growth was driven by a 25% annual increase in vCloud Air Network bookings through the quarter.
As a result of the strong performance in the first half of the year, management revised its full year revenue and margin guidance. VMware is likely to witness limited growth in license revenues through both Q3 and for the full year. Comparatively, services revenue are expected to continue to drive top line growth for the company.
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- VMware Reports Second Quarter 2016 Results, VMware Press Release, July 2016 [↩]
- VMware Q2 2016 Earnings Call Transcript, Seeking Alpha, July 2016 [↩]
- VMware Announces Intent to Acquire Arkin Net to Help Customers Accelerate Adoption of VMware NSX and Software-Defined Data Centers, VMware Press Release, June 2016 [↩]