Analyst Note| Mark Cash |
We are maintaining our fair value estimate of $202 for narrow-moat VMware after its second-quarter results topped our expectations for revenue growth and adjusted earnings. The strength shown in the quarter was derived from higher-than-expected term and perpetual license sales as VMware’s transition toward subscription and SaaS decelerated in the quarter. Shares fell by more than 5% after reporting, which we view as near-term concerns regarding subscription and SaaS traction. With a longer-term view, we believe shares offer considerable upside as we see VMware in a unique position to neutrally facilitate application and infrastructure needs across any networking environment in a cloud-first world.