VMware One to watch?

11th Jul '21 by sam_whiting

3 comments 525 reads

I was having a family meet-up at a pub when VMware was mentioned to me as a company to look at. It’s one of those which is fairly boring and difficult for most of us to understand as a micro level but I might be able to add to something.

For full disclosure I am not an IT expert, and do not plan to buy this share immediately, its more food for thought and is on the watch list.

What does it do? This is an 11 year old Child explantation as thats what I understand..

Its an IT company that helps servers run efficiently. Thats it. It does this using some fancy software so when lots of servers “computer brains” are connected it has this software application that tells that group of servers how to run in the best way possible.

So why does that matter? The company sells this software to lots of different server hardware companies including Dell, which has an 80% stake in VMware. This software is very sellable, and creates a strong business moat with repeat customers, with new updates which are sold repeatedly and along with this comes high margin servicing agreements for the servers themselves too.

Who buys this apart from Dell?- Until VMware got taken over by Dell one of its customers running this software was Apple, another current customer is AWS. The general trend of networks and demand for servers is growing and therefore VMware have a large and growing market where it can be established as one of the dominant players. The company has an interesting and hard to compete against business model where it can continually have an almost guaranteed revenue which will grow with new business.

Growth prospects

Its last quarter growth revenue grew 9% which is not earth shattering, but its the subscription model that is growing at a high rate of 29% year on year for Q1 that I find enticing. There are other growth metrics that I can list but I don’t that would add much here. There will new more products, more fancy marketing from the business but the core is increasingly simple, sell the service to maintain a subscription based model for customers to use their software. Then update the software every so often to make customers into cash machines. It has around $5billion in free cash according stockopedia.

Future Outlook,

Dell bought VMWare third hand by purchasing…

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abtan

11th Jul '21

Thanks for posting.

I can't say much about the technological superiority of VMWare, but they have a fast-growing competitor, which I have held in the past, called Nutanix.

Stockopedia has a 5 year revenue CAGR for Nutanix of +40%, but the underlying business is actually growing faster than this as the company has transitioned to a software-only model over the last few years, masking the decline in hardware sales, which is now miniscule.

They received additional funding recently to allay fears of cash burn so the imminent future looks secure too.

I'm not savvy enough to understand which company is superior, or indeed what the future of on-premise servers will look like (will more companies really have no office at all?), but both companies certainly seem to have been in a sweet spot before the mayhem of 2020.

I have no plans to open a position in either VMWare or Nutanix at this moment, although I do keep catching glimpses of the FOMO cloud hanging over me.

Good luck if you do buy in.

a.s.a.p

19th Jan '22

Nutanix is a competitor to Vmware, however it is a cheaper less superior product .

At the moment Vmware are the only company able to offer cloud storage across multipull platforms including, Microsoft, Google, Del, EMC, Amazon etc etc.

markl11

24th Jan '22

I am in IT - VMware is old technology from an IT perspective. I personally think it will be around for quite a long time, but it is not the ground breaker that it was 20 years ago. It primarily deals with on-premises IT just as most companies are from moving on-premises IT to the cloud. It does also work in the cloud, but really only as a way for companies to easily move their old tech to the cloud. So, basically, people will continue to use VMware in the short to medium term until they are fully in the cloud and then they will dump VMware (and similar companies). There really isn't a use case for it with new IT, only for old stuff that will eventually be dumped. I have heard this from a number of very large companies and it is pretty obvious to IT pros. But, you never know, I could be wrong, especially if they come up with some new ground-breaking innovations (old IT companies find this difficult to do in my experience).

VMware One to watch?

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Sam_whiting

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