VMware Inc. VMW earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, delivering an average positive earnings surprise of 5.6%.
With expected long-term earnings per share growth rate of 13.2% and a market cap of $31.5 billion, it seems to be a stock that investors should retain in their portfolio for now.
Let’s take a look at the factors that have been driving the company’s performance.
VMware's suite of virtualization solutions are benefiting from the increasing adoption of cloud-based solutions.
Enabling software support on cloud is a positive as many enterprises now prefer public cloud platforms like Amazon Web Services (AWS), Microsoft’s MSFT Azure and Alphabet’s GOOGL Google Cloud. VMware has partnered AWS to offer an integrated hybrid cloud solution, functioning much like a SDDC.
VMware on Amazon’s AMZN AWS is also widely available in Europe. The company has a similar kind of agreement with IBM. Reportedly, the company plans to expand its cloud relationship with Microsoft and Google, which will boost user base and top line in the long haul.
However, intensifying competition, longer sales cycles and heavy spending on R&D remain headwinds. Growth in license bookings has been muted in the last few quarters owing to customer delays and macro-economic weakness in some key regions. The stiff competitive environment also hurts VMware’s pricing power, thus impacting its profitability.
Nevertheless, the company has been consistently undertaking initiatives to diversify its product portfolio to include most of the IT infrastructure. The company’s acquisitions of Desktone and Airwatch have significantly strengthened its position in this aspect. The company’s offerings in domains like SDDC (vSphere, vSAN, NSX), hybrid cloud (vCloud Air, VMware Cloud Provider Program) and EUC (AirWatch, Horizon) have helped it to gain market share.
All these justify this Zacks Rank #3 (Hold) stock’s retention in investors’ portfolio.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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