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VMware (VMW) Q3 Earnings Miss Estimates, Revenues Rise Y/Y

VMware’s VMW third-quarter fiscal 2023 non-GAAP earnings of $1.47 per share missed the Zacks Consensus Estimate of $1.60 and declined 11.4% year over year.

Revenues of $3.21 billion lagged the consensus mark by 4.81%. The top line registered year-over-year growth of a mere 0.7%.

Suspension of business operations in Russia and foreign currency transactions negatively impacted the quarter’s top and bottom lines.

Top-Line Details

Region-wise, U.S. revenues (50.3% of revenues) increased 2% year over year to $1.61 billion. International revenues (49.7%) grew fell 0.6% to $1.59 billion.

Services revenues (49.9% of revenues) rose 0.7% year over year to $1.60 billion. Software Maintenance revenues (81% of Services revenues) dipped 4.1% to $1.29 billion. Professional Services revenues (19% of Services revenues) were $304 million, flat year over year.

Total License and Subscription & SaaS revenues (50.1% of revenues) increased 5.2% from the year-ago quarter to $1.61 billion.

License revenues (38.6% of License and Subscription & SaaS revenues) decreased 12.5% year over year to $621 million due to the transition to subscription and SaaS.

VMware, Inc. Price, Consensus and EPS Surprise

VMware, Inc. Price, Consensus and EPS Surprise
VMware, Inc. Price, Consensus and EPS Surprise

VMware, Inc. price-consensus-eps-surprise-chart | VMware, Inc. Quote

Subscription & SaaS revenues (76.1% of segment revenues) increased 20.5% year over year to $988 million.

Operating Details

Research & development (R&D) expenses as a percentage of revenues increased 60 basis points (bps) year over year to 20.7%.

Sales & marketing (S&M) expenses as a percentage of revenues increased 110 bps on a year-over-year basis to 30.9%.

General & administrative (G&A) expenses as a percentage of revenues remained flat at 6.4%.

Non-GAAP operating margin contracted 260 bps on a year-over-year basis to 26.7%.

Balance Sheet & Cash Flow

As of Oct 28, 2022, VMware’s cash & cash equivalents were $3.97 billion compared with $3.24 billion as of Jul 29, 2022.

Total debt (including the current portion of long-term debt) was $9.69 billion as of Oct 28, 2022, compared with $11.18 billion as of Jul 29.

Operating cash flow was $1.26 billion in the fiscal third quarter compared with $397 million reported in the previous quarter.

Free cash flow was $1.16 million in the reported quarter compared with $284 million in the previous quarter.

Revenue Performance Obligation increased 7% year over year to $11.90 billion.

Guidance

VMware has entered into a definitive agreement to be acquired by Broadcom AVGO.

Broadcom is set to acquire VMware for approximately $61 billion in cash and stock. VMW will not be providing financial guidance for the fourth quarter and full-year fiscal 2023.

Zacks Rank & Stocks to Consider

VMware currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

VMW’s shares have risen 2.2% in the year-to-date period against the Zacks Computer - Software industry’s and the Computer and Technology sector’s decline of 29.2% and 33%, respectively.

Here are some better-ranked stocks worth considering in the broader Computer and Technology Sector.

Axcelis Technologies ACLS has a Zacks Rank #2 (Buy) at present.

ACLS shares have risen 5.5% in the year-to-date period compared with the Zacks Electronics - Manufacturing Machinery industry’s decline of 33.7%.

Bumble BMBL has a Zacks Rank #2 at present.

BMBL shares have lost 35% in the year-to-date period compared with the Zack Internet Software industry’s decline of 61.2%.

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VMware, Inc. (VMW) : Free Stock Analysis Report

Broadcom Inc. (AVGO) : Free Stock Analysis Report

Axcelis Technologies, Inc. (ACLS) : Free Stock Analysis Report

Bumble Inc. (BMBL) : Free Stock Analysis Report

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