VMware's Revenue Punt Destroys Its Shares & EMC Shares (VMW, EMC)

VMware, Inc. (NYSE: VMW) has posted earnings of $0.26 non-GAAP EPS on $412 million in revenues.  First Call had estimates pegged at $0.24 EPS and $417.37 in revenues.  Even though this represents an 80% revenue gain, this is going to be dismal for most VMware investors. 

If the company offers guidance in the conference call, Next quarter’s estimates are $0.24 EPS and $436.41M in revenues; if the company offers 2008 targets, those estimates are $1.17 EPS and $2.08B in revenues.  This was only the second earnings report out of the company and its first full quarter as a public company.   Analysts had an average price target on VMware of $105.88, and we’d likely expect many analysts to have more cautious comments that this looks "near full value" based upon today’s numbers.  Its former parent, EMC Corp. (NYSE: EMC) is set to report its earnings tomorrow.

Diane Greene, president and chief executive officer of VMware: "We begin 2008 with more than 100,000 customers, 500 technology and consulting partners, nearly 10,000 go-to-market partners, and more than 5,000 employees. As others begin to enter the market, VMware and our partners are continuing to broaden and deepen our highly reliable end-to-end virtualization solutions."

• Jim Cramer had recently noted these in overlooked tech and we noted just last week how some of the estimates from William Blair were conservative compared to the pack of analysts for 2008.

VMware stock closed down 1.2% to $79.55 in normal trading and its shares had mostly traded in a $76 to $83 trading range over the last five trading sessions.  This is the worst event-risk trading seen on this with a drop of 25% to $62.37 in after-hours trading. In fact, this essentially wipes out most of the post-IPO gains.  VMware will need to show some huge guidance to make this initial reaction a bit less violent.

You can imagine the headlines for Tuesday: "VIRTUALIZATION CRAZE ENDSAS FAST AS IT STARTED"….. That might prove true for VMware, althoughthis trend will be a huge savings boon for every large and mediumenterprise out there.

EMC shares are down some 9% or more to $15.30 in after-hours trading after a mere 1% gain in regular trading today. 

Jon C. Ogg
January 28, 2008