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VMware Inc VMW

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Morningstar’s Analysis

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Economic Moat




VMware's Subscription and SaaS Outperform Amid License Headwinds in Q2; Maintaining $202 FVE

Mark Cash Equity Analyst

Analyst Note

| Mark Cash |

Narrow-moat VMware's 9% year-over-year revenue growth and adjusted EPS of $1.81 in the second fiscal quarter easily beat CapIQ consensus expectations. For VMware, the pandemic has negative and positive effects. The on-premises licenses business faced headwinds with weakness in the Americas and markets greatly impacted by shutdowns, but VMware expects licenses to pick back up as economies return to normalcy. Alternatively, the subscriptions and SaaS business performed exceptionally well as VMware's cloud-based solutions as well as products for cybersecurity and application development are becoming rapidly embraced. VMware posted a solid quarter and provided upside to guidance in a tough IT infrastructure spending environment, which are testaments to the company's transformational efforts over the last few years, in our view. We are maintaining our $202 fair value estimate and believe investors have an attractive margin of safety.

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Company Profile

Business Description

VMware, a majority-owned subsidiary of Dell, is an industry leader in virtual machines for data center servers and computer desktops. The software provider operates in the three segments of licenses, maintenance, and professional services. Customers include enterprises utilizing data centers, end-user computing, cloud providers, and software-defined networking. The Palo Alto, California, firm operates and sells on a global scale, with about half its revenue from the United States, through direct sales, distributors, and partnerships.

3401 Hillview Avenue
Palo Alto, CA, 94304
T +1 650 427-5000
Sector Technology
Industry Software - Infrastructure
Most Recent Earnings Jul 31, 2020
Fiscal Year End Jan 31, 2021
Stock Type Aggressive Growth
Employees 31,000