VMware’s Profit Outperforms As Subscriptions Rise; Street Sees 15% Upside

VMware reported stronger-than-expected 3Q results, spurred by growth in its subscription and SaaS (Software-as-a-Service) revenues. The enterprise software maker’s 3Q adjusted EPS grew 17% to $1.66 year-on-year and surpassed analysts’ expectations of $1.43.

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VMware’s (VMW) revenues increased 8% to $2.86 billion and came ahead of the Street’s projections of $2.81 billion. “Subscription and SaaS revenue increased 44% year-over-year in Q3 and surpassed license revenue for the first time,” said VMware CFO, Zane Rowe.

“VMware will continue to invest in and focus on further expanding our Subscription and SaaS portfolio, which we believe will drive company growth, customer satisfaction and shareholder value,” Rowe added. (See VMW stock analysis on TipRanks).

Following its better-than-expected 3Q results, VMware raised its fiscal 2021 revenue outlook to $11.7 billion from $11.6 billion. Adjusted EPS is now forecasted to be $7.03, up from the previous guidance of $6.62. For 4Q, the company projects revenues and adjusted earnings of $3.225 billion and $2.04 per share, respectively.

On Nov. 19, Monness analyst Brian White reiterated his Hold rating on the stock. In a note to investors, White wrote, “Given this lost year, VMware’s valuation has become more reasonable compared to the recent past and the company holds the potential to benefit from an improving global economy.”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 8 Buys and 5 Holds. The average price target stands at $172.50 and implies upside potential of about 14.6% to current levels. Shares have decreased by about 0.8% year-to-date.