Runway / Escape Velocity
-Disclosure NetApp Employee, Opinions are my own, not my employers-
Given this is an article about market growth and profitability rather than technology, I've got more questions than comments, which even though they're coming from a competitor employee are genuinely things I'm curious about.
"Nutanix made a net loss of $112m" for the quarter and "Cash and short-term investments of $350.3m" .. assuming their burn rate stays the same or worse (as indicated by the trends on the graph), my assumption is that they'll run out of operating cash within 9 months. I became the director of a business like that once, and my first agenda item at the board meeting was appointing a liquidator because the business was clearly trading insovently. How is this different ?
I suppose they could do another capital raising, or selling some of their issued shares, (I think) but wouldn't that inevitably dilute the shareholding (the reverse of a buyback), hence doesn't the apparent inevitability of that make them a bad investment prospect ? If they can do that, how deep is that bucket before they have to do another capital raising ?
I've also heard (and only half understood) that its OK to keep making losses to gain market share but at some point you need to hit a revenue run rate that allows you to amortise your fixed expenses across that discounted cash flow (or something like that), at which point the path to profitability becomes obvious, but if you don't get there before you burn out your cash you hit the wall .. kind of like running out of runway. I'd heard that Pure's CEO had put that at run rate at $1B, which if true, then based on their most recent results, that would see Pure running out of money before they become profitable.
Of course I know this comes off sounding like a competitor saying "don't buy their tech because they'll run out of money and DIE !!! Just look at Violin !!!!", but from my perspective it really does look like that, having said, based on the recent stock price movements, that the market seems to see things differently, so I'm probably wrong.
Those notions of revenue run rate, projected expenses, time to profitability, and stuff like that are probably in their earnings disclosures, but it would be interesting to me if that stuff was decoded and summarised in articles like this, because it still remains a mystery to me how the "never mind the losses, look at the growth !" thing is justified in terms of financial engineering. I know this isn't Seeking Alpha or some other stock journal, but if you're going to cover stuff like this for the tech audience, it would be really cool to see it explained in a way an IT engineer can make sense of.
Thanks
John