VMware (VMW) Q1 Earnings Miss Estimates, Revenues Rise Y/Y

VMware’s VMW first-quarter fiscal 2023 non-GAAP earnings of $1.28 per share missed the Zacks Consensus Estimate by 18.47% and declined 27.3% year over year.

Revenues of $3.09 billion lagged the consensus mark by 3.08% but improved 3.1% on a year-over-year basis.

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

Top-Line Details

Region-wise, U.S. revenues (49.2% of revenues) increased 3.5% year over year to $1.52 billion. International revenues (50.8%) grew 2.7% from the year-ago quarter to $1.57 billion.

Services revenues (52.4% of revenues) rose 0.6% year over year to $1.62 billion. Software Maintenance revenues (81% of Services revenues) dipped 0.8% to $1.31 billion. Professional Services revenues (19% of Services revenues) were $307 million, up 7.3% year over year.

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

Total License and Subscription & SaaS revenues (47.6% of revenues) increased 6.1% from the year-ago quarter to $1.47 billion.

License revenues (38.9% of License and Subscription & SaaS revenues) decreased 11.5% year over year to $572 million due to the transition to subscription and SaaS.

Subscription & SaaS revenues (68.6% of segment revenues) increased 21.3% year over year to $899 million.

Operating Details

Research & development (R&D) expenses as a percentage of revenues increased 140 basis points (bps) year over year to 20.7%.

Sales & marketing (S&M) expenses as a percentage of revenues increased 210 bps on a year-over-year basis to 30.9%.

General & administrative (G&A) expenses as a percentage of revenues increased 30 bps to 6.4%.

Non-GAAP operating margin contracted 590 bps on a year-over-year basis to 25%.

Balance Sheet & Cash Flow

As of Apr 29, 2022, VMware’s cash & cash equivalents were $3.72 billion compared with $3.63 billion as of Jan 28, 2022.

Total debt (including the current portion of long-term debt) was $11.93 billion as of Apr 29, 2022 compared with $12.67 billion as of Jan 29, 2022.

Operating cash flow was $1.01 billion in first-quarter 2022 compared with $1.14 billion reported in the previous quarter.

Free cash flow was $899 million in the reported quarter compared with $1.01 billion reported in the previous quarter.

Revenue Performance Obligation increased 5% year over year to $11.56 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, and as such, VMware will not be providing financial guidance for the second quarter of 2023 and the full fiscal year of 2023.

Zacks Rank & Stocks To Consider

VMware has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

VMW’s shares have risen 4% in the year-to-date period, against the Zacks Computer – Software industry’s and the Computer and Technology sector’s decline of 24.7% and 28.4%, respectively.

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

Analog Devices ADI currently sports a Zacks Rank #2 (Buy).

ADI’s shares have fallen 6.3% in the year-to-date period compared with the Zacks Semiconductor – Analog and Mixed industry’s decline of 17.3%.

Avnet AVT flaunts a Zacks Rank #1.

Avnet’s shares have increased 14.7% in the year-to-date period against the Zacks Electronics – Parts Distribution industry’s decline of 8.2%.

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