The cloud computing sector was rocked on October 6th after a warning from small-time industry player Equinix, Inc. (EQIX). Despite enormous growth potential, the cloud stocks were trading at ridiculous multiples, and momentum chasers were punished for ignoring valuation. Investors, after the overaggressive sell-off, have been wondering whether the skies would soon clear in the sector for a buying opportunity. On the surface, the street-beating earnings report after the close Monday from VMware, Inc. (VMW) seems to be the first ray of light peaking through, but the market is not getting responding well to the report.
VMware, Inc. (VMW) reported Q3 earnings per share of $0.39 v $0.35 expected, with revenues of $714 v $698 median expected. The non-GAAP net income was $165 million and $0.39/share (vs $95 million and $0.24/share in the year ago period) and revenues were up 46 percent from Q3 2009.
“VMware’s third quarter results were driven by strong demand across products and regions, led by the U.S. federal sector,” said Mark Peek, chief financial officer. “For the fourth quarter, we expect total revenues to be within a range of $790 and $810 million, an increase of 30 percent to 33 percent from 2009.”
However, VMW is trading down nearly 8% after hours (as of 5pm EST) as investors feel the report does not represent enough growth to justify VMware’s still lofty valuation. The report was initially met with a flurry of buying, but trailed off as buyers lacked conviction.
