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Enterprise data storage company Pure Storage (PSTG) reported earnings late Wednesday that topped analysts expectations, with sales coming in slightly ahead as well. But PSTG stock sank in after-hours trading after the company’s forecast for fourth-quarter sales came in lighter than expected. The company blamed short-term headwinds as it shifts more business to a subscription model.
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For its fiscal 2024 third quarter, Pure Storage reported adjusted earnings of 50 cents per share on $763 million in third-quarter sales. On average, analysts polled by FactSet expected Pure Storage to earn an adjusted 40 cents per share on $761 million in sales for the quarter, which ended Nov. 5.
Earnings for Pure Storage climbed 61% year over year while sales increased 13%. The quarter is Pure Storage’s fiscal 2024 third quarter.
PSTG stock tumbled more than 12% to 33.35 in recent after-hours trading on the stock market today. Shares fell as much as 15% before recovering slightly.
PSTG Stock: Forecast Short Of Views
Mountain View, Calif.-based Pure Storage offers high-speed data storage systems for businesses using all-flash chip technology. Facebook parent company Meta (META) is a major customer.
The company’s forecast for the next quarter apparently triggered the harsh reaction on Wall Street late Wednesday.
For the current fiscal fourth quarter, Pure Storage forecast $782 million in sales. Analysts expected $919 million, according to FactSet. And for its full fiscal year ending Feb. 5, Pure Storage forecast sales of $2.8 billion. Analysts were looking for sales growth of 7% to $2.96 billion.
Shift To Subscription Model
In an interview with CNBC shortly after the earnings report was published, Pure Storage Chief Executive Charles Giancarlo said investors will recognize Pure has a “good story,” once they’ve had more time to digest the results. Giancarlo also noted that the company is transitioning to a subscription model that is based on consumption of its storage tools, called Evergreen One.
“As we move to the subscription model, of course, that means near-term capex revenue is substituted by longer-term, and richer, subscription and consumption revenue,” Giancarlo said. “Most of the change in the forecast is really due to that accelerated approach toward the consumption model.”
Subscription services revenue for Pure Storage climbed 26% year over year to $309.6 million, the company said.
Pure Storage had an additional headwind in a $41 million order from a telecom company that will not be fulfilled until after the fiscal year, Chief Financial Officer Kevan Krysler said on the earnings call.
PSTG Stock: Data Storage Group Leader
Pure Storage shares have gained 42% this year, prior to the earnings report Wednesday. Further, PSTG stock is in a cup-with-handle pattern with a buy point of 38.19, according to IBD MarketSmith. Prior to the after-hours drop, PSTG stock had gained 5.7% Wednesday to close at 37.93.
Another data storage company, NetApp (NTAP) gained more than 15% Wednesday following its earnings report late Tuesday. The company beat estimates for earnings and revenue and gave a sales forecast ahead of consensus.
Pure Storage ranks first out of 10 stocks in IBD’s Computer-Data Storage industry group, according to IBD Stock Checkup. Shares have an IBD Composite Rating of 87 out of 99.
Further, PSTG stock is on the IBD Tech Leaders list.
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