Applied Optoelectronics Soars 23%: Impressive Trajectory, Says Craig-Hallum

Quite a contrast today in the world of fiber optics, as shares of Acacia Communications (ACIA) sold off by 15% after the company yesterday afternoon beat Q4 revenue and profit expectations, but forecast this quarter’s revenue well below consensus, while shares of Applied Optoelectronics (AAOI) soared by $8.51, or 23%, to close at $45.98, after the company yesterday reported its own results that slightly beat Q4 expectations and forecast this quarter’s results well ahead of consensus.

Applied’s December-quarter revenue was up 60%, year over year, at $84.9 million, ahead of the average $84.6 million, with profit of 84 cents, topping the average estimate by 5 cents. The outlook for revenue of $87 million to $91 million is nicely ahead of the average $75 million estimate.

Applied also told the Street it thinks that over the “long term” it can have gross profit margin in a range of 37% to 40%, versus the 33% to 35% it had been talking about up until yesterday.

CEO Dr. Thompson Lin cited “strong demand for our market-leading data center products” as a source of the quarter’s results. Said Lin, “as the 100G transition accelerates this year, we see the opportunity to build on our momentum and expand our market leadership.”

Richard Shannon with Craig Hallum reiterated a Buy rating in response, and raised his price target to $53 from $39, writing that the impressive results and forecast are “even more impressive” given that “its data center sales are still skewed toward 40G sales, which is a more competitive market, and is still in very early innings to ramp its 100G LR (10km) solution where GMs [gross margins] are high.”

Shannon likes the margin outlook:

AAOI’s 4Q GM of 38% were an all-time high, but should be beaten in 1Q and possibly beyond. AAOI is getting this benefit from cost reductions, creating similar designs between 40G and 100G, and using automation. While we don’t think AAOI can get better utilization, a mix shift towards 10km solutions could do so after 1Q.

Shannon notes that the company’s commentary seems to suggest that it has won Facebook (FB) as a customer for 11% of its revenue, and perhaps seen its sales into Microsoft’s (MSFT) cloud business decline to around 3%; although it might seem Intel (INTC) is eating into Applied’s Microsoft franchise, Shannon writes that while “some investors may assume INTC is taking share with these PSM4 modules, but we suspect AAOI still has a strong position.”

By Tiernan Ray

Source:http://blogs.barrons.com/techtraderdaily/2017/02/24/applied-optoelectronics-soars-23-impressive-trajectory-says-craig-hallum/?mod=mw_hpm

Nutanix aims to crack open the tech IPO window

Source: Nasdaq

Executives pose at the Nutanix IPO at the Nasdaq market site in New York, September 30, 2016.

Technology IPOs have shown some life in September after a brutally slow first eight months of the year. 

The main event is Friday, with the Nasdaq debut of Nutanix.

After filing its IPO prospectus in December, Nutanix delayed its offering in the first quarter because of volatility in the stock market and a revaluing of cloud technology companies. Finally, on Thursday night, the San Jose, California-based company raised about $238 million, selling shares at $16 a piece, above the expected range of $13 to $15.

The stock soared 91 percent to $30.60 as of mid-day in New York.

Nutanix, whose data center technology combines computing, storage and networking into a single product, has Silicon Valley watching its every move. That's because Nutanix has the type of rapid growth model that became popular for emerging software start-ups in recent years — raise a ton of money, burn cash to expand quickly, repeat.

More than three-dozen software companies have been valued at $1 billion or more by venture capitalists, according to The Wall Street Journal. Wall Street has responded with a different message: No thank you.

In the past 12 to 18 months, "the Street really made a change and basically made it very clear that they want a path to profitability," said Matthew Howard, a managing partner at Norwest Venture Partners and an investor in enterprise technology start-ups. "If you look at most key metrics, the lines seem to be converging."

VC-backed IPOs

Company	Type	Offer date	Amount raised
Nutanix	infrastructure	Sept. 29	$238 mln
Apptio	software	Sept. 22	$110 mln
Trade Desk	ad-tech	Sept. 20	$97 mln
Everbridge	software	Sept. 15	$104 mln
Twilio	software	June 22	$160 mln

Source: Company filings

Those lines for Nutanix are gross profit and expenses, with the latter currently much larger than the former.

Revenue jumped 84 percent in the past year to $445 million. Its gross profit from that was $274 million, while operating expenses were $439 million. Add it all up, and Nutanix reported a net loss of $168 million.

However, billings more than doubled, an indication that there's no slowdown in revenue growth in the near future. Also, three-quarters of customers make repeat purchases, so all of those upfront costs associated with sales and marketing show a return on investment over time. 

Founded in 2009, Nutanix has been going up against some of the biggest names in the data center, from VMware and EMC to Cisco andHewlett Packard Enterprise. Developing technology that combines all that functionality — what's known as hyperconvergence — and getting the market to understand, test and adopt it has required a massive investment.

Nutanix raised about $400 million in private financing, including an equity round in mid-2014 at close to a $2 billion valuation. In order to maintain a strong cash position while it waited to go public, Nutanix raised $75 million in debt in June.

"People are using legacy products and they need to be tutored on the advantages of hyperconvergence," said Mohit Aron, a co-founder who left in 2013 to start his own back-up company called Cohesity. "Once you can convert a customer you don't have to do much sales and marketing on that customer."

Nutanix's roster of clients includes Aflac, Best Buy, eBay and Honda.

Customers typically want the types of computing speed and efficiency offered by big cloud vendors, like Amazon Web Services and Microsoft Azure. But as large enterprises, it's not practical or desirable to push all of their data and computing to the public cloud.

10 Tech Companies With Big Cloud Businesses

Cloud services are increasingly becoming a material part of business for many tech companies, especially to those that may be struggling with revenue growth from more traditional businesses.

"Enterprises are increasingly moving application workloads to the cloud in lieu of replacing older IT systems or building new data centers," Pacific Crest Securities analysts Brent Bracelin and Alyssa Johnson wrote in a note to clients last week. Pacific Crest Securities is a division of KeyCorp. In 2015, the adoption of cloud services by large businesses "created a market tipping point in 2015. Cloud is increasingly material and matters."

As a result, investors should consider 2016 as the kick off for another major investment cycle to support further cloud adoption. Companies including Microsoft, Amazon and Alphabet, among others, noted that they are boosting resources to cloud services this year. Pacific Crest Securities analysts are projecting that capital expenditures in 2016 for cloud services by the top 20 companies offering cloud services could rise 21% year-over-year to $62.7 billion.

Cloud computing, commonly referred to as "the cloud," is the "delivery of on-demand computing resources-everything from applications to data centers-over the Internet on a pay-for-use basis," as described by IBM. There is a business-to-consumer segment, where Facebook and Google, for instance, have significant offerings, such as Google's Gmail and Google Drive and Facebook's photo storage options. And then there is the business-to-business cloud segment, which Pacific Securities estimates that revenue for the top 10 largest cloud providers there is nearing $42 billion on an annualized basis - a figure that is growing 51% year over year and 9% sequentially.

Research firm IDC forecasted that global spending by companies on public cloud services will rise 19.4% on a compound annual growth rate to $141 billion by 2019.

Software as a Service, or SaaS, is slated to remain the preferred cloud computing type, capturing more than two thirds of all public cloud spending by 2019, IDC said in January. However, IDC noted global spending by companies on Infrastructure as a Service, or IaaS, and Platform as a Service, or PaaS, will grow at a faster rate than SaaS with five-year CAGRs of 27% and 30.6%, respectively.

By 2018, most software vendors will have fully shifted to the cloud as a software or platform service. "This means that many enterprise software customers, as they reach their next major software upgrade decisions, will be offered SaaS as the preferred option. Put together, new solutions born on the cloud and traditional solutions migrating to the cloud will steadily pull more customers and their data to the cloud," said Frank Gens, IDC's chief analyst, in the January press release.

It will be large companies driving more than half of the spending on cloud services, but small and mid-size businesses will also be significant contributors to the overall spending, IDC said. 

Here are the top 10 companies that are generating high revenue from cloud services in the enterprise space. Pacific Crest Securities determined annualized revenue based on fourth-quarter revenue figures and estimates for those that haven't reported results yet.

 

10. NetSuite(N - Get Report) 
NetSuite is a vendor of cloud computing business management software suites. The company caters to businesses in retail, wholesale distribution, manufacturing and non-profit sectors.

NetSuite enables companies to "manage core key business operations in a single system, which includes Enterprise Resource Planning (ERP), Accounting, Customer Relationship Management (CRM), and Ecommerce," according to itswebsite.

NetSuite's fourth quarter annualized cloud revenue is $800 million, up 31% year over year, according to Pacific Crest Securities. While the San Mateo, Calif.-based company plans to spend roughly $50 million on cloud capital expenditures in 2016 (flat compared to 2015), the analysts expect CapEx to be around $54 million this year.

 
9. Workday (WDAY - Get Report)

Workday provides enterprise cloud applications for finance and human resources companies in the United States and internationally. It offers applications for customers to manage critical business functions that enable them to optimize their financial and human capital resources.

Workday's fourth quarter annualized cloud revenue is approximately $1.2 billion, up 42% year over year, according to Pacific Crest Securities.

Pacific Crest expects the Pleasanton, Calif.-based company to spend roughly $177 million, an increase of $30 million, on cloud capital expenditures in 2016.

Workday plans to report fiscal 2016 results on Feb. 29.

Workday's executives have a storied history in the tech industry. In the late 1980s, Workday Chairman and co-founderDave Duffield co-founded PeopleSoft -- essentially a predecessor to Workday. He hired Aneel Bhusri (now Workday's CEO) to join him at PeopleSoft and the company grew to be the world's second largest application software company, before it was acquired by Oracle in 2005 in a hostile takeover. The two founded Workday in 2005. 

 
8. Google Compute (Alphabet (GOOG - Get Report) (GOOGL - Get Report) )

Alphabet offers many cloud-based services, both consumer and specifically to businesses. Google's large consumer cloud business includes Gmail and Google Drive, for instance. Google Compute Engine is Google's (Alphabet's) infrastructure as a service platform (IaaS). The services allows clients to run workloads on Google's physical hardware.

Google Compute's fourth quarter annualized cloud revenue is approximately $1.8 billion, more than doubling year over year, according to Pacific Crest Securities.

Pacific Crest estimates the company's cloud CapEx for its entire cloud businesses (not just B2B) to be $11.4 billion in 2016.

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7. Rackspace Hosting (RAX - Get Report)

Rackspace Hosting is a cloud computing and hosting company.

Rackspace's fourth quarter annualized cloud revenue is approximately $2.1 billion, up 14% year over year, estimates Pacific Crest Securities.

Pacific Crest expects the San Antonio-based company to spend roughly $500 million, an increase of $22 million, on cloud capital expenditures in 2016.

San Antonio-based Rackspace will report fourth quarter results on Feb. 16.

Rackspace was nominated by TheStreet as a "Worst Stock in the World," as it's facing steep competition from Amazon,IBM, Alphabet, and Microsoft and others. Shares of the company have fallen just over 45% over the last two years, even as it has tried to reinvent itself as more of a hosting company.

 
6. SAP (SAP)

SAP, a German software and services provider, has been ramping up its cloud-based business through acquisitions, such as its 2012 purchase of Ariba, as well as partnerships, such as IBM, to sell cloud-based services.

SAP's fourth quarter annualized cloud revenue is approximately $2.5 billion, more than double the year before, according to Pacific Crest Securities estimates.

Pacific Crest expects SAP to spend roughly $812 million on cloud capital expenditures in 2016, up from $682 million in 2015.

The company had strong growth in its cloud business in 2015, it said in January as part of its preliminary earnings results. 

Hottest Tech Trends You Should Be Investing In

There is no denying that technology is on the rise and rapidly evolving. Prospective tech investors should be diligently paying attention to which sectors could be the next big thing. If you are not already watching the following tech trends, start doing so now.

THE INTERNET OF THINGS

Despite its somewhat vague moniker, the Internet of Things (IoT) is poised to become a major force in the tech industry. Some experts are already predicting that this year could be THE YEAR for wearables. Whether or not that proves to be the case, the rise of the Internet of Things cannot be denied. Although many people tend to associate wearables with this rising new sector, the Internet of Things is about far more than that. Despite the fact that Apple made big news when it finally released its smartwatch, Google ( GOOG) has continued to make progress in the field of the Internet of Things. In fact, last year alone, Google purchased almost three dozen companies.  (For related reading, see articles: The Internet Of Things In 2015 and Intel's Investing Heavily In The Internet Of Things.)

Among the most notable of those firms was Nest Labs, the home automation company. That acquisition alone led to significant discussions regarding whether Google could eventually dominate the home automation field. For its part, Google has certainly made no secret of the fact that it sees tremendous marketing potential in automated home devices by indicating to the SEC back in 2013 that it intends to place advertisements on refrigerators and thermostats.

Google has not stopped there, however. The tech giant has also scooped up a number of other companies engaged in fields ranging from music streaming to cloud computing to artificial intelligence. The massive share of the global search market that Google holds means they certainly have the connections to have their fingers in a lot of different pies, which could certainly prove to be beneficial when it comes to the Internet of Things. (See article: The Business Of Google.)

IBM (IBM) is also now putting a few eggs in the basket known as the Internet of Things, announcing its plans to invest as much as$3 billion over the next four years. That investment is being set aside specifically to build the company's IoT unit. Ultimately, the unit is planned to serve as an open platform that will allow manufacturers to design IoT-connected devices to improve decision-making processes. 

THE RISE OF CLOUD COMPUTING

While the concept of cloud computing has been around for a while, it is still emerging at a rapid rate and is now one of the quickest growing areas of technology. Not that long ago, users had no choice but to store and access data on devices such as disks and even USB flash drives. Today, all of that has changed, as more and more data is now being sent into the cloud. The benefits of this technology, which affords users the ability to access cloud-stored data from any location, have allowed it to quickly create a hot market. No longer are users restricted to limited storage. With the ability to store data remotely, it has become possible for users to share data and collaborate in the use of data more than ever before. (For related reading, and an initial outlook on cloud computing just a few years ago, see article: Is Cloud Computing An Investable Trend?)

Moving data to storage in the cloud has also resulted in a number of other secondary benefits, including the ability to manufacture devices that are lighter, smaller, and increasingly more portable. Consequently, the cloud has become a significant element in the tech sector, and the market for services associated with the cloud is growing daily. According to TechTarget, adoption of cloud services is expected to continue growing. Much of that growth will be driven by increased stability, improved tools, and increasing confidence in the cloud itself.

Underscoring the rising trend of cloud computing is an announcement of a survey conducted by Oxford Economics, indicating that 69 percent of businesses participating in the survey expect to make heavy investments in the cloud over the next three years. Almost all of the 200 executives participating in the Oxford Economics survey reported that cloud computing is now part of their organizations' business strategy. The increased adoption of this technology has resulted in climbing revenues among cloud providers -- which is anticipated to reach approximately $200 billion over the course of the next five years, compared to approximately $60 billion one year ago.