VMware Inc. (NYSE: VMW) released its fourth-quarter 2022 earnings and revenue results in which it narrowly beat market estimates and delivered growth of 24% in Subscription and SaaS ARR for FY2022.
What to look for: The company posted strong results during the quarter, but its FY2023 guidance was shy of Wall Street estimates. The growth in customer demand for the company’s multi-cloud solutions is shown in the fourth-quarter results. Currently, the company benefits from the transformation and modernizing of enterprises to software-based digital entities. Vmware is better positioned to help customers create, operate, and secure applications in the multi-cloud environment.
Earnings: Stockearning’s Estimated EPS was pegged at $1.97 per share, but the company had adjusted EPS of $2.02. Under GAAP standards, the company reported $586 million or $1.39 per share earnings. In the third quarter, the company produced an EPS surprise of 33.07% with $1.23 per share earnings. Historical EPS performance shows that in the past 12 quarters, the company has topped estimates ten times (83%) and missed twice (16%). For the first quarter of FY 2023, the company anticipates non-GAAP earnings of $1.56 per share below Street estimates of $1.64 per share.
Revenue: Vmware reported 7% YoY growth in revenue in Q4 2022 to $3.53 billion, in line with Wall Street estimates. For the full year 2022, the company had revenue of $12.85 billion, representing a YoY increase of 9%. In addition, the combined subscription and SaaS revenue increased 13% YoY to $6.33 billion. As a result, the company expects revenue of $3.185 billion for the April quarter representing a 6.5% increase but shy of Wall Street projections of $3.23 billion. For FY 2023, the company anticipates cash flow from operations and free cash flow of $4.2 billion and $3.75 billion, respectively.
Stock movement: VMW shares have gained 1.4% since the company released its last earnings release. Interestingly, the company’s shares have been UP in the last 25 quarters following earnings releases out of 49 quarters. So, the historical price reaction suggests a 52% probability of the share price going UP following the earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-6%, while the predicted volatility on the seventh day is +/-6%.
Analysts are saying: Citi analyst Fatima Boolano commenced coverage on the stock, downgraded it from Buy to Hold, and slashed the price target from $177 to $140. According to the analyst, VMware has done a "respectable job" in gathering the proper assets and re-organizing its product concept to respond to workload growth, Cloud app dev expansion, and architecture complexity arising from hybrid IT, compared to other transformation stories. However, Boolani believes that VMware's dominant status in new markets is "acceptable but not decisive" and that short-term valuation increase is "out of reach" due to the possibility of stagnating profitability expansion due to expenditures and revenue balance shift.
Macquire analyst Garret Hinds commenced coverage of VMware with a Buy rating with a price target of $157. Hinds sees the company better placed to reaccelerate revenue growth and capitalize on the growth of 5G networks.
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