Pure Storage
shares were tumbling in late trading Wednesday after the enterprise storage company provided disappointing guidance for its fiscal fourth quarter ending in January.
The company blamed the miss on a combination of a business model transition and the delayed fulfillment of a large customer order.
In late trading, Pure shares were 14% lower, at $32.63.
There were no issues with results for the October quarter. Pure Storage posted revenue for the period of $762.8 million, up 13% from a year earlier, and slightly ahead of both the company’s forecast of $760 million and the Street consensus as measured by
FactSet
of $761 million. Non-GAAP operating income was $169.1 million, above the company’s forecast of $135 million. On an adjusted basis, Pure earned 50 cents a share, a dime above consensus. Under generally accepted accounting principles the company earned 21 cents a share.
The issue for the stock is the guidance. Pure is forecasting January quarter revenue of $782 million, down 3.5% from a year ago, and well below consensus at $919 million. The company sees non-GAAP operating income for the quarter of $150 million, again below the Street, which had expected $199 million.
For the fiscal year ending in January, Pure now sees revenue of $2.82 billion, up 2.5%, which is below the Street consensus at $2.96 billion. The company inched up its full-year estimate on non-GAAP operating margin to 16%, from 15.7%.
In comments prepared for the company’s earnings conference call, Pure said that two factors were at play in the softer January quarter guidance. One element is stronger-than-expected uptake for the company’s storage-as-a-service offering, which reduces upfront revenue compared with the company’s more standard business model
The company said that it had previously expected 1 to 2 percentage points of headwind to revenue from the business model shift, but now estimates the effect will be 3 points. Pure also said the outlook was affected by a $41 million telco product order that is now not expected to be fulfilled until the January 2025 fiscal year.
Pure CEO Charlie Giancarlo notes that the company now gets 41% of its revenue from subscriptions. As that proportion grows, the effect is to smooth out reported revenue, while reducing the portion recognized upfront. Many software companies have made that transition, but it is a rate switch for a company that has primarily sold hardware.
Giancarlo says his challenge is to explain the shift—which he says is no reflection on changing demand—to a group of analysts who mostly follow hardware companies.
Asked about the macroeconomic outlook, Giancarlo says that conditions were stable in the quarter, neither improving nor worsening. But he notes “customers are still very cautious in how they spend money.”
Write to Eric J. Savitz at eric.savitz@barrons.com
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