VMware’s Strong Growth In License Bookings Drives Robust Q1 Outlook

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Virtualization and cloud computing provider VMware (NYSE:VMW) announced its Q4 fiscal 2018 earnings on March 1. The company continued to demonstrate strength in its business through the fiscal year, with fast-growing segments such as network virtualization, hybrid cloud, hyper converged software and vSAN driving growth. As a result, VMware’s license business witnessed double digit growth in Q4 and through the year. On the other hand, services revenue growth slowed down in the latter half of the year to mid single digits, due to which full year services revenues grew just under 10% for the year.

We have summarized the company’s Q4’18 results on our interactive dashboard platform. In addition, we have also added guided segment revenues, operating margin and net income margin expectations for the current quarter. You can change expected revenue, operating margin and income margin figures for VMware to gauge how changes will impact expected earnings for the current quarter. 

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Going forward, VMware’s licenses segment is expected to continue to grow rapidly. VMware’s management expects licenses revenues to increase 14% to $730 million in the first quarter, while services revenues are expected to be up 8% to $1.2 billion. However, an increase in operating costs (particularly R&D expenses) could lead to a lower operating margin. Additionally, VMware will report improved margins in Q2 and Q4 due to seasonality in commission expenses, based on revised ASC 606 accounting standards. This trend is also likely to sustain through fiscal 2019.

We maintain our $100 price estimate for VMware’s stock, which is around 15% lower than the current market price.

See Full Analysis For VMware Here

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