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VMware Inc Class A VMW

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Morningstar’s Analysis

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VMware's Strong Third Quarter Provides Confidence in Longer-Term Subscription Transition; $175 FVE

Mark Cash Senior Equity Analyst

Analyst Note

| Mark Cash |

We are maintaining our $175 fair value estimate for narrow-moat VMware after its year-over-year revenue growth and adjusted earnings for the third quarter breezed by our expectations. Shares were flat after reporting, which we believe is due to investors being aligned with our mixed reaction to fourth-quarter guidance being lighter on revenue, but higher on earnings than anticipated. We believe long-term investors have an attractive entry point, and we expect the subscription and SaaS transition to accelerate in fiscal 2023. Although investors can be wary of organizations undergoing this transition, we believe VMware is uniquely positioned to deliver the infrastructure, application development, cybersecurity, and end user compute management needs across any network environment. Now being a standalone entity after spinning off from Dell Technologies, we expect tighter partnerships with cloud providers, hardware companies, and channel partners to help lock VMware's solutions into customers' daily operations for the long term.

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Company Profile

Business Description

VMware is an industry leader in virtualizing IT infrastructure and became a stand-alone entity after spinning off from Dell Technologies in November 2021. The software provider operates in the three segments: licenses; subscriptions and software as a service; and services. VMware’s solutions are used across IT infrastructure, application development, and cybersecurity teams, and the company takes a neutral approach to being the cohesion between cloud environments. The Palo Alto, California, firm operates and sells on a global scale, with about half its revenue from the United States, through direct sales, distributors, and partnerships.

3401 Hillview Avenue
Palo Alto, CA, 94304
T +1 650 427-5000
Sector Technology
Industry Software - Infrastructure
Most Recent Earnings Oct 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Aggressive Growth
Employees 34,000