Nutanix NTNX was recently named as a possible takeover candidate by tech publication, The Information. The publication also mentioned that Alphabet GOOGL, Hewlett Packard Enterprise HPE and Cisco CSCO might be interested buyers.
Nutanix is considered a pioneer in the hyper converged infrastructure (HCI) market, which is projected to grow rapidly in the long term. MarketsandMarkets notes that the global HCI market is expected to grow from $7.8 billion in 2020 to $27.1 billion by 2025. Therefore, buying Nutanix is expected to be profitable for each of the aforementioned speculated potential buyers.
Notably, Hewlett Packard bought Nutanix’s competitor, SimpliVity, in 2017, making the speculations about being a potential buyer stronger. Buying Nutanix will strengthen Hewlett Packard’s position in the fast-growing HCI market.
Later that year, Cisco acquired hyperconvergence software provider, Springpath, boosting its competitive position in the HCI market.
Moreover, Google is trying to expand its footing in the HCI market by partnering with Scale Computing and Nutanix.
Markedly, per Statista, as of the first quarter of 2020, Nutanix continues to hold the second position in the HCI market with a 13.1% market share, whereas Hewlett Packard replaced Cisco in the third position with 6% share after three consecutive quarters.
Cisco had a solid net-cash balance of $12.49 billion as of Apr 25, 2020, positioning it well to pursue a strategic acquisition.
Hewlett Packard Enterprise has also ample financial liquidity, which it can use for the acquisition. As of Apr 3, 2020, the company had cash and equivalents of $5.13 billion. Also, it has generated $2.65 billion of operating cash flows in the trailing 12 months.
Alphabet’s net cash balance of $77.04 billion as of Mar 31, 2020, also reflects a strong financial position to make a takeover bid easily.
Meanwhile, Nutanix has reported losses since its inception. As of Apr 30, 2020, accumulated deficit for the company was $2.3 billion. Moreover, its increased level of investments is expected to hurt profitability at least in the near term. In the first three quarters of fiscal 2020, non-GAAP operating loss widened to $381 million compared with a loss of $170 million in the first three quarters of fiscal 2019. This doesn’t bode well for investors.
Nutanix currently has a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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