) reported fourth-quarter 2013 non-GAAP earnings of $1.01 per
share, which jumped 24.7% from the year-ago quarter, driven by
strong revenue growth and margin expansion.
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Revenues increased 14.7% year over year to $1.48 billion and was
slightly better than the Zacks Consensus Estimate. Revenues were
toward the higher end of management's guided range of $1.45
The year-over-year increase in revenues can be attributed to
15.1% growth in license revenues and 14.4% increase in services
revenues. Among services revenues, software maintenance jumped
18.3% from the year-ago quarter, which fully offset the 7.6%
decline in professional service revenues.
Moreover, strong demand for VMware solutions across international
markets helped revenues. International revenues (52.0% of total
revenue) surged 17.9% year over year to $771.0 million. U.S.
revenues (48.0% of total revenue) increased 11.4% from the
year-ago quarter to $712.0 million.
Bookings grew 20.0% year over year in the Americas, with strong
growth from the federal market. Europe, Middle East and Africa
bookings grew in low double-digits, while Asia-Pacific bookings
increased at high teens range. China bookings were up 20.0% from
the year-ago quarter.
During the quarter, VMware secured 10 deals, each worth more than
$10.0 million. Enterprise License Agreements (ELA) accounted for
approximately 40.0% of fourth-quarter bookings.
VMware's network virtualization platform NSX, launched in Aug
2013, was adopted by several high-profile customers including
) in the quarter.
VMware's hybrid cloud solutions grew 100% year over year in the
Operating margin expanded 460 basis points (bps) from the
year-ago quarter to 27.3%. Operating profit includes stock-based
compensation but excludes one-time items.
The strong growth in operating margin was driven by lower
research & development expense (down 150 bps) and sales &
marketing (down 260 bps), which was partially offset by higher
general & administrative expense (up 20 bps).
Net Income margin was 24.0% compared with 18.8% reported in the
year-ago period. Earnings including stock-based compensation but
excluding one-time items was 82 cents per share, which beat the
Zacks Consensus Estimate by a nickel.
VMware exited the quarter with cash and cash equivalents
(including short-term investments) of $6.18 billion compared with
$5.84 billion in the previous quarter. Cash from operations was
$688.0 million versus $637.0 million in the previous quarter.
Free cash flow was $590.0 million.
During the quarter, VMware repurchased approximately 1.4 million
shares for approximately $116.0 million at an average price of
$82.0 per share.
For fiscal 2014, VMware forecasts revenues to be in the range of
$5.94 billion to $6.10 billion (up 14.0% to 17.0% year over
year). Excluding Pivotal, divestitures but including $75.0
million from recently acquired AirWatch, revenues are expected to
grow in the range of 16.0% to 18.5% for 2014. The Zacks Consensus
Estimate is pegged at $5.99 billion.
License revenues for 2014 are expected to be in the range of
$2.55 billion to $2.63 billion (up 12.0% to 16.0% year over
year). Excluding Pivotal and divestitures, and including
AirWatch, license growth rate is expected to be up 13% to 17%
For fiscal year 2014, operating margin is expected to be
approximately 31.0%. The company expects to continue its share
buyback program in 2014.
For first quarter of 2014, management expect revenues to be in
the range of $1.33 billion to $1.37 billion (up 12% to 15% year
over year). Excluding Pivotal, divestitures but including maximum
$10.0 million from recently acquired AirWatch, revenues are
expected to grow in the range of 16.0% to 19.0% for the first
quarter. The Zacks Consensus Estimate is pegged at $1.35 billion.
License revenues for the first quarter are expected to be $545.0
million to $555.0 million (up 12.0% to 14.0% year over year).
Excluding Pivotal and divestitures, and including AirWatch,
license growth rate is expected to be up 14.5% to 17% versus the
first quarter of 2013.
Operating margin for the first quarter is expected to be
approximately 31.0%. However, operating margin is expected to
decline 150 bps to 200 bps in the second quarter due to the
dilutive effect of the AirWatch acquisition. Second-half 2014
operating margin is expected to increase as compared to the first
VMware expects revenues to increase 16.0% to 20.0% in 2015 and
2016, up from previous guidance of 15.0% to 20.0%. The AirWatch
acquisition is expected to be accretive to non-GAAP earnings in
VMware's back-half loaded 2014 outlook failed to impress the
market. Moreover, the dilutive effects of the AirWatch
acquisition is expected to remain an overhang on the stock. We
believe that sluggish IT spending environment and intensifying
competition from its peers such as
) are primary headwinds, going forward.
Moreover, VMware's continued investments in the emerging markets,
product innovations and acquisitions are expected to weigh on
margins in the near term.
However, VMware's strong product portfolio is a major positive.
The company continues to win contracts and robust international
sales will continue to boost top line, going forward. Moreover,
the acquisitions of Desktone and AirWatch will boost top line,
Currently, VMware has a Zacks Rank #3 (Hold).