Why Alphabet Pact Could Help Nutanix Double

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Nutanix Inc. (NASDAQ: NTNX) shares saw a handy gain on Wednesday after a new partnership with Alphabet Inc. (NASDAQ: GOOGL) was disclosed. Nutanix ultimately formed this partnership with Google to allow customers to move application workloads easily between on-premise data centers running on Nutanix gear and Google’s public cloud. As a result, one analyst took this opportunity to weigh in on Nutanix and potentially sees this stock doubling.

Credit Suisse reiterated an Outperform rating with a $38 price target, versus an $18.64 price (implying upside of 104%) ahead of the move. Nutanix was also recently featured as 1 of 7 analyst picks for 100% to 400% upside.

Credit Suisse believes this partnership is an endorsement of Nutanix’s road map. Over time, the firm believes this will allow it to tap into the $32 billion total addressable market (TAM) at a faster pace by leveraging the hybrid cloud structure. Additionally, this move confirms Credit Suisse’s view on the firm’s growth potential and its above-consensus estimates could prove conservative. Credit Suisse assumes revenues of $762 million (+71%) and $1.2 billion (52%) in fiscal 2017 and fiscal 2018, respectively.

According to Credit Suisse’s report:

While Nutanix intends to support the hybrid structure with AWS and Azure, it has been working more closely with Google, according to CNBC. We note Nutanix is the pioneer and leader of the hyperconvergence market, enabling customers to consume datacenter hardware in a cloud-like fashion with its virtualization software. In addition, CNBC reported Google has been less active in supporting hybrid structure until this partnership. We believe with this partnership, Nutanix will continue to drive its roadmap ahead, allowing it to tap into the $32 billion TAM at a faster pace. While we understand that both Microsoft and AWS have larger cloud footprints we do see this move as incremental and positive.

The brokerage firm believes that this partnership will prove positive for its go-to-market strategy. Credit Suisse’s projection is based on the following drivers:

  • We see healthy customer growth of 12% or roughly 900-1000 per quarter.
  • Its recent focus on G2000 should help both the existing customer deal size and the new customer deal size. We note that NTNX now has 521 G2000 customers, up 64% yoy with a 26% penetration rate. A G2000 customer’s repeat purchase multiple is 7.8x vs 4x for an average customer.
  • Sales & Marketing headcount was up +45%yoy, higher than our assumption of 34% in FY18. In addition, its sales people typically mature after 4-5 quarters and its focus on G2000 could further drive the productivity.

Shares of Nutanix were trading up over 7% at $20.00 on Wednesday, with a consensus analyst price target of $27.76 and a 52-week range of $14.38 to $45.78.