VMware Looks Strong In Q4 Print; Investors Look For Next Catalyst

Shares of VMware, Inc. (NYSE: VMW) hit a new 52-week high of $89.50 on Friday after the company reported its fourth-quarter results, which one analyst described as being one of its best quarters in years.

Very Healthy Quarter

According to Ben McFadden of Pacific Crest, VMWare's quarter was "very healthy" and exceeded expectations. The company's strength was driven by an acceleration of license revenue to 7 percent while billings growth also accelerated to 13 percent in the quarter.

McFadden continued that VMware's results were "especially favorable" given the strength in core compute which experienced a high single-digit bookings growth driven in large part by the new renewal cycle with ELAs representing more than 40 percent of total bookings.

McFadden further noted that VMware saw strong strength throughout the world even though some of its software peers experienced macro or currency problems.

Positive Aspects

McFadden went on to note that the most positive aspect of the quarter with VMware's NSX business which surpassed a $1 billion annualized bookings run-rate.

Other positive aspects of the quarter include:

1. Hyperconverged business that reached a $300 million run-rate.
2. The hybrid cloud/SaaS segment now represents 8 percent of revenue.
3. The EUC business saw a rebound and showed a mid-teens license growth.

Wait For A Catalyst

McFadden argued that while VMware's results "brought optimism back into the story," but this isn't reason to rush in and buy the stock.

McFadden added that VMware's guidance for fiscal 2018 implies a similar revenue growth and margin profile as 2016 and the ELA cycle is unlikely to be as favorable.

As such, the analyst recommends investors wait for signs of inflection or material public cloud contribution before becoming aggressive on the stock.

Shares remain Sector Weight rated with no assigned price target.

At last check, shares of VMware were up 3.44 percent at $87.12.