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Does Nutanix’s subscriber growth bode well for SaaS stocks?

Software-as–a-service stocks (SaaS) CrowdStrike, Nutanix and Squarespace all topped revenue estimates this week. The companies also showed signs of robust subscriber growth, shaking off any concerns that spending on enterprise software, cybersecurity and web hosting could slow.

- CrowdStrike, Nutanix and Squarespace beat analysts’ revenue expectations.

- Nutanix’s subscriber base could benefit from Broadcom’s acquisition of VMware.

- The ProShares Ultra Nasdaq Cloud Computing ETF holds all three stocks and is up 21% year-to-date.

After the big SaaS players reported last week, it was the turn of Nutanix [NTNX], Squarespace [SQSP] and CrowdStrike [CRWD].

Nutanix was first up on Monday. EPS of $0.11 on revenue of $486.5m topped analyst expectations of $0.11 per share on $464.97m. Results are preliminary because accounts have not yet been audited.

Squarespace, which reported before the market opened on Tuesday, beat top-line estimates, but its earnings missed by $1.97. EPS were a loss of $1.72 on revenue of $228.8m, versus $0.25 per share on $222.1m as expected by analysts.

CrowdStrike reported after the market closed on Tuesday. EPS of $0.47 on revenue of $637.4m surpassed the analyst forecast of $0.43 on $626.8m.

The CrowdStrike share price popped after-hours, gaining as much as 9.1%, after being up 18.7% year-to-date. The Squarespace share price opened 8.7% higher after the company reported before the opening bell, and closed up 24.2% year-to-date later that day. The Nutanix share price is up 1.7% since 1 January, after having pulled back 7.9% following its earnings report.

Strong annual bookings and subscriber numbers

Nutanix’s strong performance in the November to January period was underpinned by a 23% growth rate in its annual contract value billings. It also reported a record free cash margin of $63m, up from $17.2m the year-ago quarter.

“The value proposition of our platform is resonating with customers as they look to tightly manage their IT and cloud costs while modernising their data centres and adopting hybrid multi-cloud operating models,” said president and CEO Rajiv Ramaswami in a statement issued with the preliminary results.

By the end of January, Nutanix had 2,013 customers that had spent more than $1m over the lifetime of their contract, up from 1,918 at the end of August and 1,662 the year-ago quarter. Of these 2,013, 125 customers had spent more than $10m, up 24% year-over-year. 

Squarespace’s unique subscriptions increased 3% year-over-year to 4.2 million for 2022, while average revenue per unique subscription also increased 3% from $202.54 in the fourth quarter of 2021 to $209.16.

“We ended the fourth quarter with accelerated growth and exceeded our revenue and unlevered free cash flow guidance, continuing the strong momentum growing in our business,” said the website builder and web hosting provider’s chief financial officer Nathan Gooden.

As for CrowdStrike, it has alleviated any concerns—at least for now—as to whether enterprise spending on cybersecurity is in decline. New annual recurring revenue (ARR) was a record $222m and it ended the November to January period with record net new subscription customers of 1,873.

No signs of softening demand

Though Nutanix’s subscription model seems to be holding up well in a tough macro environment, shares in the software stock tumbled on Wednesday. One explanation could be the fact that profits could yet fall, and expenses rise, once its delayed accounts have been audited and published.

Another explanation is soft revenue guidance of between $430m and $440m for the current quarter. The mid-way point of $435m would imply a growth rate of 7.8% year-over-year, down from 18% in the last quarter and 17% in the year-ago quarter.

Beyond the current quarter, the company’s subscriber base could get a boost from Broadcom’s [AVGO] impending acquisition of VMware [VMW]. Some of the latter’s customers have had concerns that the takeover would lead to increased costs, which could prompt them to look for alternative products.

As businesses continue to be targeted by cyber criminals and experience data breaches, CrowdStrike should continue to add subscribers and its new ARR should continue to grow.

“CrowdStrike’s growing market share showcases customers' recognition of the Falcon platform’s technology leadership and advanced AI that drives better security outcomes,” co-founder, president and CEO George Kurtz said in a statement.

Funds in focus: ProShares Ultra Nasdaq Cloud Computing ETF

While Nutanix, Squarespace and CrowdSrike may not be as well-known as names like Salesforce [CRM], Workday [WDAY] and Zoom [ZM], they are popular with fund managers.

Nutanix is the sixth-biggest holding in the ProShares Ultra Nasdaq Cloud Computing ETF [SKYU], with a weighting of 2.53% as of 7 March. CrowdStrike and Squarespace have allocations of 0.48% and 0.60%, respectively. The fund is up 21% year-to-date, though down 5.4% in the past month.

Nutanix is the fourth-biggest holding in the First Trust Cloud Computing ETF [SKYY], with a weighting of 3.61% as of 6 March. CrowdStrike and Squarespace have weightings of 0.64% and 0.69% respectively. The fund is up 11.5% year-to-date, though down 2.3% in the past month.

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