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Pure Storage (PSTG) to Report Q2 Earnings: What's in Store?

Zacks Equity Research

Pure Storage Inc. PSTG is scheduled to report second-quarter 2020 results on Aug 21. Notably, the company beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters, with an average positive surprise of 26.2%.

Past-Quarter Performance

In the first quarter, the company reported non-GAAP loss of 11 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 8 cents and the year-ago quarter’s loss of 7 cents.

Although total revenues surged 28% from the year-ago quarter to $326.7 million, it lagged the Zacks Consensus Estimate of $334 million.

Q2 Estimates

For the second-quarter, Pure Storage expects revenues of $389-$401 million (mid-point $395 million). The Zacks Consensus Estimate for revenues is pegged at $394.6 million, indicating year-over-year growth of 27.8%.

However, the Zacks Consensus Estimate for the second-quarter bottom line is pegged at a loss of 4 cents, suggesting a decline of 500% year over year.

Management had also lowered fiscal 2020 outlook. The company now expects revenues of $1.70-$1.77 billion (previously $1.735-$1.805 billion).

Notably, shares of Pure Storage have declined 16.9% on a year-to-date basis, against the industry’s rally of 3.2%

Let’s delve deeper and analyze the factors likely to influence the company’s results in the to-be-reported quarter.

Key Factors to Watch

The company might falter in the to-be-reported quarter owing to multiple headwinds including intensifying competition from peers, lack of international customers and mounting losses.

We expect currency headwinds, and high tariffs owing to trade war between the U.S. and China to weigh on revenue growth and margin expansion. Further, intense competition from fellow storage peers including NetApp NTAP is likely to create pricing pressure, which is likely to impact profitability.

Further, Pure Storage has been incurring operating losses since inception and had an accumulated deficit of $1.18 billion as of Apr 30, 2019. The company does not expect to generate profit in the near term, on account of continued investments on research & development and sales & marketing. Despite the increasing top line, mounting losses doesn’t augur well for the to-be-reported quarter’s results.

In a bid to sustain competitive position, Pure Storage is introducing products with updated capabilities. Increasing spend on portfolio expansion is likely to weigh on margin expansion at least in the near term. This in turn is likely to impact the upcoming quarterly results.

Notably, during the quarter under review, Pure Storage unveiled flash and cloud-based ObjectEngine solution. The latest backup and restore storage solution is designed to enable customers to modernize data protection strategy. Additionally, ObjectEngine users can access required data in real time through a faster, secure and cost-effective medium.

Further, the company also announced the expansion of Evergreen Storage Service (ES2) – offering customers with a unified subscription model across hybrid environments.

Pure Storage recently also announced the buyout of Compuverde, a developer of file software solutions. The acquisition will aid Pure Storage's file abilities by offering a unified storage offering and enhance customer experience.

The company’s first-ever buyout of StorReduce remains a notable development. Management remains elated on the acquisition of StorReduce’s de-duplication technology. The company announced the availability of StorReduce to provide backup and speed up analytics processes for data warehouses. These initiatives are likely to aid the to-be-reported quarter’s results.

Notably, Pure Storage added more than 350 customers in the last reported quarter, bringing the total base to more than 6,200 organizations. The company is rapidly gaining traction in the flash storage market, which is evident from its expanding customer base. Strength in product portfolio including the likes of FlashArray, FlashStack and FlashBlade business segments is projected to positively impact the upcoming quarterly results.

We believe the recent buyouts, collaboration synergies and product rollouts bode well for Pure Storage.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Pure Storage has a Zacks Rank #4 (Sell) and an Earnings ESP of -100.00%. This combination makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

The Cooper Companies, Inc. COO has an Earnings ESP of +1.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutanix Inc. NTNX has an Earnings ESP of +4.80% and a Zacks Rank #3.

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