In its earnings release on Thursday, Nutanix beat market projections with $267.9 million in software and support revenue, representing 49% growth year-over-year, and $1.16 billion in total revenue for fiscal 2018, surpassing its goal of $1 billion by the company's 10th birthday.
CEO Dheeraj Pandey spoke with TheStreet in a wide-ranging chat on what cloud trends investors need to know about (hint: it's not all about Amazon (AMZN) - Get Report and Microsoft (MSFT) - Get Report ), how Nutanix is preparing for a tech crash, and what the 'Uber or Airbnb of cloud computing' will look like.
Q. Looking five years ahead, do you still see a world where public cloud is dominated by a small set of companies -- Amazon Web Services or Microsoft Azure?
A. If you go back through the history of PCs, Apple (AAPL) - Get Report was dominant in 1990 and Microsoft was nowhere. All of a sudden in the next 5 years, Microsoft changed the game by saying that PCs aren't about hardware; it's about software and about bringing suppliers into the mix. Then Apple competed in the exact same way ten years later by bringing a million suppliers of apps into their network, compared to thousands of suppliers that Microsoft was bringing in independent software vendors (ISVs). I think the idea of miniaturizing computing is a timeless thing, and we'll see cloud being miniaturized as well. That's where the real wars will be fought.
Q. You've talked before about the importance of impressing Main Street as well as Wall Street. Can you elaborate on that?
A. As you go public, a lot of management teams and CEOs become really short term because all you're thinking about is quarter-to-quarter. And then they bemoan the fact that Wall Street made them short-term. In the end, it's the conviction of the management team and leaders within the company to say, we're in a marathon, and we'll checkpoint every quarter. Most companies tend to forget that. The way we've reconciled it is the 'Rule of 40' -- by saying, don't ask me for one or other other, I'll give you a combination of growth and profitability. If my growth slows I'll spit out cash; if I spit out cash don't expect growth. We talk about getting your weekends back; we talk about reducing friction for enterprise workflows which are very boring workflows. The consumer mentality is what motivates us most.
Q. We're in this bull market right now, but on the flip side, there's always chatter that tech in particular is due for a downturn. How do you insulate Nutanix from those kinds of macro market shifts?
A. It's a great question -- and it's not a question of if, but when. Could be the next 12 months, 18 months. Again, going back to the Rule of 40, we say: Let's not be too crazy with spending cash. Instead, let's do everything we can in terms of growing the business within this free cash flow and breakeven window. Also, culture is important. Going back to Main Street, to me, and to lots of us it's about employees, customers and partners in that order. Employees matter a lot. They're the ones who withstand the test of time. When a crash happens and we all appear to be fragile, it becomes about: can we connect to our employee base? We have company values -- hungry, humble, honest, work hard. But how we lead with those values comes down to culture. Amazon has done a great job with this. And we've done our own version in the way we talk to customers, avoid waste, and get comfortable being uncomfortable.
Q. Nutanix is still a fairly young company -- about 9 years old. When you look at the long term, which companies do you seek to emulate?
A. I always think in trifectas -- there's good things to take from Amazon, Google (GOOGL) - Get Report and Apple -- and see if you can get the best from all three. With Amazon, it's organizational design that's amazingly well done, and they're customer-obsessed because they come from a retail background. Google is very automation and latency-obsessed -- they believe in AI and machines. Apple is experience-obsessed -- they think a lot about humans. There's a lot of good things to get from all three. There are some bad things in all three, for example if you look at Amazon's revolving door issues, or Google's issues with product design, or Apple's issues with cloud services. But we try to get the best from all three.
Q. What do you see as the most biggest trends in cloud computing that investors need to be looking out for?
A. In the next 3 to 5 years, it's a question of how you disperse the cloud to the edge. Machines are getting more intelligent, which means they need logic and intelligence. That's on everyone's minds. It started with big data centers that you rent from, or small data centers that you can own. But the lines will blur. And now it's not just about thinking about small data centers; it's about thinking in terms of small devices that can fit in the palm of your hand. Or that run in a car, where you have to do a lot of analytics and that can produce a terabyte of data. In general, autonomy -- whether it's in cashier-less restaurants, cars or wherever -- is the reason why edge computing will become big.
I'm also very passionate about the idea of what the Uber or Airbnb of cloud computing will look like. [Uber and Airbnb] don't own anything, yet they own everything in terms of customer retention. Cloud has to be like that, where you don't have to be an owner of a large data center, buildings or large physical assets. There's going to be a big disruption in dispersing not just the location of cloud, but also the economics of cloud. Having 1 or 2 vendors just doesn't cut it; it has to be about software. Once you do that, it creates a level playing field.