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Nutanix IPO a done deal ... finally

Nutanix IPO has been in limbo since December, but the hyper-converged pioneer is now a public company amid rosy forecasts for the technology it helped push into the foreground.

After a nine-month wait, Nutanix is a public company.

The hyper-converged pioneer completed its long-delayed initial public offering (IPO) today and expected to raise around $238 million to fund its sales and development efforts.

Thursday night, Nutanix said it would sell nearly 15 million shares on the Nasdaq Stock Market with an opening price of $16. The shares closed today at $37 for a 131% gain on the first day of trading. Nutanix CEO Dheeraj Pandey rang the opening bell at Nasdaq this morning in New York to honor its first day as a public company.

The Nutanix IPO is a hallmark event for hyper-convergence, which combines compute, storage and virtualization inside the same device. Nutanix began selling hyper-converged storage in 2011. It remains the market leader, with $254 million in revenue and thousands of customers in the first half of 2016.

Nutanix first filed for its IPO last December, but poor market conditions and the vendor's heavy financial losses prompted its directors and bankers to wait months to go public. They hoped to retain the $2 billion valuation at the time of its last funding round in 2015.

Other startups, such as SimpliVity, Pivot3 and Scale Computing, followed Nutanix into hyper-convergence, as did established players VMware, Dell EMC, Hewlett Packard Enterprise, Lenovo and Cisco.

Nutanix gained the industry's attention with its consistent sales growth at a time when overall storage sales are stagnant. Dell EMC has set a goal of passing Nutanix in hyper-converged market share by mid-2017 (Dell also sells Nutanix software on PowerEdge servers in a partnership that predates its EMC acquisition).

A report by 451 Research this week said its most recent survey of IT buyers shows 40% of enterprises are using hyper-converged systems. According to the 451 report, "hyper-converged infrastructure represents the next evolutionary step of standard converged infrastructure."

Technology Business Research Inc. (TBR) forecasts that hyper-converged systems revenue will grow at a 50% compound average rate between 2015 and 2020 to reach $1.6 billion.

IDC put hyper-converged revenue at $481 million last quarter, a 137.5% increase over the same quarter last year.

Nutanix's $16 opening share price was higher than expected. The company set a target range of $11 to $13 last week, then increased that to $13 to $15 this week before surpassing both targets.

Ron Nash, CEO of Nutanix rival Pivot3, said the IPO is a good sign for all hyper-converged vendors.

"We think the hyper-converged wave is big enough that you can have two or three companies worth tens of billions of dollars," Nash said. "You can build the next Hewlett Packard or VMware in this wave.

"I congratulate Nutanix on its IPO. This is a big positive for all the rest of us. We talk to customers who say 'I heard about hyper-converged, but I don't know if it has staying power.' But Nutanix has a multi-billion dollar valuation because everybody's betting that it's going to grow even bigger. Now customers say 'This is real, maybe I should place my bets.'"

Nutanix is shifting its focus from being a pure hyper-converged vendor to one that provides private cloud infrastructure. During the Nutanix .NEXT user conference in June, Nutanix executives laid out plans to compete with virtualization king VMware and public cloud giant Amazon Web Services on those companies' turf. Nutanix received a large share of its early customers from VMware referrals. Now, the two vendors are competitors, following VMware's move into hyper-converged with its Virtual SAN software and Nutanix's development of its own hypervisor.

Mohit Aron, a Nutanix founder who moved on to start secondary storage vendor Cohesity in 2013, said Nutanix needs to keep innovating to stay on top in hyper-convergence. He pointed to Nutanix developing its own KVM-based Acropolis hypervisor as an example that it will continue to innovate.

"Look at Google; it kept innovating despite being the king in search for a long time," Aron said. "Apple has innovated for 20 years. Then look at a company like NetApp that milked its cow for a while, then lost its shine. Nutanix is innovating, it has a strong platform that does hyper-converged, but also does other stuff on top of that. [Developing] Acropolis reduced its dependence on VMware. It's a good thing when investors see that innovation."

A staunch Nutanix customer, Matt Day, IT manager of Langs Building Supplies in Australia, said during .NEXT that he worried about the IPO slowing the vendor's pace of innovation. He said he expected Nutanix to concentrate on engineering more after becoming public.

"I hope the IPO hurries up," Day said in June. "I think we're in a situation where the IPO takes the focus off customer outcomes. They're taking a financial approach. 'How do we show the market that we're a viable company, we can make money, we're a good investment?' I think after the IPO happens, you'll see the focus shift back to 'we're a good engineering company, that's what we do and we care about our customers.'"

Nutanix's filings with the Securities and Exchange Commission claim revenue of $445 million for the fiscal year that ended July 31. It reported $140 million in revenue last quarter, up 22% from the previous quarter. However, Nutanix lost $168 million for the last fiscal year and $50 million last quarter.

Next Steps

How hybrid cloud users can take advantage of cloud HCI

Nutanix Xtreme Computing Platform: A private cloud case study

Alternative use for HCI

Dig Deeper on Hyper-Converged Vendors and Products

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Do you think Nutanix's IPO will help or hurt its competitive standing amid the large storage and server vendors?
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Well, the issue with these profitless storage businesses is that they burn through their funding rounds and spend like crazy to get the growth and valuation they think they need to go public.  In the case of Nutanix, they also borrowed $75M from GS just a couple of months ago. GS has a stake in Nutanix as an underwriter and investor so they were probably glad to finally see Nutanix go public.  It remains to been seen if companies like Nutanix and Pure Storage can keep losing money as public companies for the length of time it will take to see a substantial number of their competitors exit the market.  Right now, there are too many companies in this segment of the storage market for all of them to survive.  Clearly, Nutanix and Pure Storage believe they will be survivors but when will they become profitable?
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