What To Expect From VMware’s Second Quarter Earnings

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VMware (NYSE:VMW) is scheduled to announce its Q2 fiscal 2019 earnings on Thursday, August 23. The company reported a 14% increase in net revenues to just over $2 billion in the first fiscal quarter. License revenues rose 21% on a y-o-y basis to $774 million for the quarter, while Services revenues were up 10% to $1.2 billion. This has been the prevalent trend in recent quarters, with the virtualization and cloud computing provider demonstrating strength in its core business and reporting a high growth in areas such as network virtualization, hybrid cloud, hyper converged software and vSAN. The growth is likely to continue in the coming quarters as well. We have created an interactive earnings preview dashboard for VMware where we have summarized the company’s guided segment revenues and operating margin, and have used our forecasts to arrive at earnings for the quarter. If you disagree with our forecasts, you can change expected revenue, operating margin and income margin figures for VMware to gauge how it will impact expected EPS. 

Based on VMware’s positive guidance for revenues and profit margins for the fiscal second quarter, License revenues are forecast to be up in the mid-teens to $875 million due to an expected increase in license bookings. Similarly, Services revenues are expected to be up by nearly 10% to $1.3 billion. In addition to the strong revenue growth, VMware’s non-GAAP operating margin is forecast to be nearly 3 percentage points higher over Q2’18 at 33.5%. In recent quarters, VMware’s operating profit margin (non-GAAP) has been at record high levels of around 33%. This trend is expected to continue through FY’19 due to a limited increase in SG&A expenses. As a result, net income and EPS should increase by around 25% on a y-o-y basis to $615 million and $1.49, respectively.

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