Pure Storage plunges, analysts defend mixed quarter, lowered guidance (PSTG)

Pure Storage (NYSE:PSTG) shares fell nearly 15% in premarket trading on Thursday after the enterprise storage provider offered up a mixed third-quarter and cut its revenue guidance for fiscal 2024, leading to some concern on Wall Street.

JP Morgan analysts, led by Pinjalim Bora, said there were two “incremental headwinds” that caused the lowered guidance: stronger than expected sales of its subscription and consumption offerings; and the impact of a non-cancelable product order with a telecom customer that likely won’t be fulfilled until next year, with revenue being pushed out.

“Pure’s business strategy this year has been focused on encouraging customers to transition to its consumption and subscription services, as well as incentivize sellers to drive that mix shift,” the analysts wrote. “With annual [total contract value] bookings for Evergreen//One and Evergreen//Flex expected to reach [roughly] $400M this year, and more than doubling [year-over-year], we think that motion is starting to hit an inflection point.”

The analysts, who lowered their price target to $40 from $45 after the results, conceded that the fiscal 2025 guidance is likely to remain an overhang, but its subscriptions should drive longer-term predictability and with the company innovating, the current price is “an attractive buying opportunity for [long-term investors].

The reaction is in stark contrast to competitor NetApp (NTAP), which reported results earlier this week.

Wedbush Securities analyst Matt Bryson also tweaked his price target lower to $40 from $45 and said the guidance cut was likely a one-off issue with a customer. However, the drop might have been worse if management had done a better job communicating the impact of the shift to software-as-a-service to investors.

Pure Storage forecast fourth-quarter revenue of $782M, lower than the consensus estimate of $919.4M.

Looking to fiscal 2024, it expects revenue is expected to be $2.82B, up just 0.7% year-over-year and well below the $2.96B estimate.