No. of Recommendations: 1

3rd Q 2016 : 46.4%
3rd Q 2017 : 46.6% no change


Not sure where you are getting your numbers. These are Gaap numbers, maybe you are using non-gaap?


Not Ant here, but you are correct. He's taking out SBC to come up with the 42% S&M number. That was almost identical to last year in the same quarter. I'm sure the company is looking toward some leverage in the near term to bring that number down slightly, but they are looking to land clients which costs money.

One has to consider the valuation here when comparing Pure to Arista. Of course, Arista is putting up fantastic numbers, and believe me, I love the company and it has grown to be my largest holding. However, unless we are going to put all of our eggs in one basket, we need to look further.

Doesn't a future target of 15-20% operating margin seam low?

Maybe, yet it is likely better for a company that is making their way to profitability at $1B in revenue to not begin making decisions as if they would be printing money in a couple of years. If their product is truly that much of a game changer it will gain attention in the marketplace. Then it may be time to up the ante a bit. We would hope to see them outpacing market growth which they are currently, but forecasting slowing growth.

We shall see. So far, I like what I've read up on regarding the benefits their software provides and their position in the AFA market.

Regards,
A.J.
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No. of Recommendations: 4
https://blog.purestorage.com/biggest-software-launch-pures-h...

It is not commodity of software is the key. Unstructured data is clearly cloud and AI. Arista is software software software sold w in an industry best hardware package.

Nutanix sold itself in a commodity wrapper of a storage appliance.

Is this what Pure is doing? If so it is not commodity. And btw the name PURE is mentioned too often by competitors such as Network Appliance who is now moving to flash and readjusting its software in accordance.

On the other hand NTNX just took on $400 million in debt, whereas Arista is printing hordes of cash seemingly w no serious competition.

Go where there is no real competition. Does PURE have any? If not, it is not a commodity but a software disruptor in a flash server wrapper.

I propose we ask one of the folks who rec’d “clean” DACA bill to post on this question. Really!

Tinker
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this line from the link got my attention


 If you look at most of our competitors – their product lines make you choose between the highest reliability and modern innovation: At Pure – we believe this is a false choice, and today we’re introducing a set of fully-integrated features which end the compromise and raise the bar on Tier 1 storage.

A sign of true innovation is that incumbents are usually asking the wrong questions.


and this
What’s universal about this new world of big data and big intelligence, is that massively parallel is the new norm.  These new data applications are built on a massively parallel architecture, taking advantage of multi-core CPUs and GPUs, but they’re being starved by a previous generation of storage.  THIS is why we built FlashBlade.

So no, it is not a commodity but rather a mix of hardware and software aimed at fixing a broken process. Something that most analysts and the market have not quite figured out yet. Maybe no big moat but the market they serve is growing very fast and incumbents do not have much in the way of solutions.
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If it is software and it is disruptive and leading the market disruption in a long term hyper growth market and it is not in a bubble.

Well, you know my thoughts on ANET in such circumstances.

Tinker
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No. of Recommendations: 2
I can't get over the fact that they are going to spend 1/2 a billion dollars on S@M this year. Also, their target operating margin in the future is 15-20%. So will be 12-15% net margin.

This tells me the product isn't strong (yet), it doesn't sell itself, and they have no pricing power.

What am I missing?

Jimbo
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Just curious, but what is your definition of "S@M"?
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No. of Recommendations: 1
I doubt if PSTG is any kind of gorilla. But gorillas are scarce, expensive, and I already own all the ones I want to. Especially since recently (since NVDA) I have not been able to identify any before the rest of the market piles on.

I do like some minimal diversity. I own a dozen stocks, almost all tech or e-commerce. Including PSTG. Though this is really minimal diversity, it will protect me somewhat against individual stock risk .
I have a dozen stocks but am way overweight in a couple of them

Re selling itself, companies mostly copy-cat each other and it may take a minimum corporate penetration before solutions sell themselves . Look a the early days of the PC in corporations. PSTG is possibly in early adapter stage now.

Too bad much of Tinker's link was over my head. I know little about storage but enough to see there is that all important broken corporate process. And enough to see that in general (somewhat depending on he time frame ) PSTG stock is going up.
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No. of Recommendations: 1
Sales and Marketing.

Pure forecasts Revenue of $1 Billion this year. 1st 6 months they have spent just over 53% of revenues on sales and marketing, from their last earnings report.

Jimbo
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No. of Recommendations: 9
Jimbo I think your numbers are off - they are at 42% S&M for Q3 and that is down from 48% in Q2. They are targeting 25% and they are just transitioning to profitability this Q. It is hurtling down very quickly. These guys are getting better and better at winning more and more business faster than ever.

They also had massive gains in deferred revenues that are not counted in these figures plus have a ramping service business plus an increasingly important software mix to their offering.

These guys are laying it up big time and everyone is asleep at the wheel on this fundamental and huge secular trend.

They are nearly a double for me on one of my PSTG stakes which adds to the multi bagger I made on NTAP and VMware and EMC and Fusion io. I’ve never seen as consistent a multi bagger sector as data storage in the last 10 years.

Ant
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No. of Recommendations: 4
Jeepers,

Pure Storage is selling for a prayer if one counts forward looking revenues and puts in a reasonable margin, say 15%, or even at 10%. The sector is cyclical. So many rode the NTAPs, Brocades, and the like of the world to huge heights only to see them crash down again. But that is not the case at the current valuations.

I will do some pleasure reading tonight. But looking at this, the risk/reward seems to be quite compelling here. I don't say that about commodity companies, because the risk/reward is never compelling in such a company. But a market leading company that has real and material software differentiation selling a product that appears to be disruptive, as we have seen in the change from linear (such as email servers and data base servers) to parallel that ANET disrupted. Why would not data servers also need such a disruption? I don't know, maybe they don't.

I do know PURE is mentioned as the player that other players like NTAP are shooting for, just like NTNX was also mentioned as such. Always a good indicator when the player being singled out by a larger player is a very much smaller and newer player doing something a bit different than the incumbents.

Tinker
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No. of Recommendations: 0
I need to look further at PSTG. If PSTG is starting to hit a business inflection point, then that is something. But otherwise the Mauser rule is applicable, and PSTG, although having quite positive stock appreciation, it is far below the best companies.

It is even below its most pointed to peer (other than EMC), NTAP. In every comparison I make, 1 yr, 2yr, 6 month, year to date, NTAP kicks PSTG butt in stock appreciation.

Of course this sort of thing is subject to change, and PSTG has the idiosynchrocies of coming out of an IPO. However, that IPO was in 2016 if the chart is correct, so that idiosyncrasy should be out of the stock by now.

What counts is the future. Just like to look at it from all relevant angles to pick up clues as to its future based upon current holistic facts.

Tinker
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No. of Recommendations: 3
Ant-

Here is what I have from the 3rd quarter report (I was looking at 2nd quarter before):


Sales and Marketing as % of Revenue


9 months 2016 : 52.4%
9 months 2017 : 50.7% 1.7% improvement yr to yr


3rd Q 2016 : 46.4%
3rd Q 2017 : 46.6% no change


Not sure where you are getting your numbers. These are Gaap numbers, maybe you are using non-gaap?


I like the story. Software/Hardware to change an industry, reminds me of Nvidia and Arista. But, I can't get comfortable with the Sales and Marketing spend.

They have about 4000 customers , and will sign up about 1000 or a little more this year.

At $1 B rev x 50% = $500,000,000 sales and marketing spend.

1000 new customers is $500,000 / new customer

How are you comfortable with the high sales and marketing spend?


Doesn't a future target of 15-20% operating margin seam low?


When you compare these numbers to Arista and Nvidia, there is no comparison.

Thanks,
Jimbo
Also, congrats on your double with PSTG
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No, it is not a Nvidia or Arista. Then again most are not Microsoft or Cisco either.

What concerns me is that NTAP stock has materially outperformed PSTG stock. I believe NTAP is their closest peer.

So I want to know if PURE is singular or one of the pack.

https://www.gartner.com/reviews/market/solid-state-arrays/co...

Here, customer reviews show little to distinguish between PURE and NTAP.

https://blog.purestorage.com/contrasting-pure-netapps-philos...

Here PURE is saying they are singular.


https://www.theregister.co.uk/2016/03/16/pure_to_be_next_net...

This may give us some qualitative answers.

https://www.itcentralstation.com/products/comparisons/netapp...

More comparative answers, and so on....

But you know what, you cannot like this if you are NTAP. This established industry leader, one time disruptor and 10bagger, a company clearly on a comeback, is being compared at every turn to PURE.

I am not an insider and all this info will just tell me that both have systems that customers are quite pleased with. However, w every breath PURE is mentioned w NTAP. Tells me Pure is onto something because they are not competing to be the low cost commodity “white box” substitute for NTAP. As such, unless they are bringing something distinctive and valuable to the table that NTAP and its peers are not, they have no business even being in the conversation.

That has so often been the only thing you need to know.

BTW this company is selling for a for a hypothetical forward PE of 19.

Maybe the company will never become profitable but assuming it achieves a 15 PE his company is selling for dirt cheap. That of course is always a risk that the company will not succeed in achieving its potential but assuming it does that’s a mighty nice valuation to look at.

Will review further and make final decision tonight because I need to buy some more stocks.

Tinker
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No. of Recommendations: 1

3rd Q 2016 : 46.4%
3rd Q 2017 : 46.6% no change


Not sure where you are getting your numbers. These are Gaap numbers, maybe you are using non-gaap?


Not Ant here, but you are correct. He's taking out SBC to come up with the 42% S&M number. That was almost identical to last year in the same quarter. I'm sure the company is looking toward some leverage in the near term to bring that number down slightly, but they are looking to land clients which costs money.

One has to consider the valuation here when comparing Pure to Arista. Of course, Arista is putting up fantastic numbers, and believe me, I love the company and it has grown to be my largest holding. However, unless we are going to put all of our eggs in one basket, we need to look further.

Doesn't a future target of 15-20% operating margin seam low?

Maybe, yet it is likely better for a company that is making their way to profitability at $1B in revenue to not begin making decisions as if they would be printing money in a couple of years. If their product is truly that much of a game changer it will gain attention in the marketplace. Then it may be time to up the ante a bit. We would hope to see them outpacing market growth which they are currently, but forecasting slowing growth.

We shall see. So far, I like what I've read up on regarding the benefits their software provides and their position in the AFA market.

Regards,
A.J.
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No. of Recommendations: 0
BTW this company is selling for a for a hypothetical forward PE of 19.

Tinker,

Are these your assumptions for the hypothetical PE?

30% Growth - $1,325M
15% Margin - $199M
Shares - 213M
Price - $17.89
P/E - 19

Thanks,

A.J.
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I had growth slightly higher as I think it will be. But pretty much. Yes.

Tinker
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Either way, the valuation is not the risk here. The risk one is taking w such an investment is on the business succeeding or remaining an also ran.

I have fear of capital loss sometime. But once I find something I’m comfortable w, that goes away and then I do not want to stay in something like (sorry :( ) a QCOM or such that is a great company but no longer timely. That is why I sold out of QCOM in 2005 or 2006 I think. Certainly has not done anything since then until the r cent acquisition news by BRCM.

5g is another oppprtunity, but still in the future.

So for me it comes down to (1) do I have confidence this business is something special and (2) is it timely. No question here it is timely and at this valuation the question becomes is it or is it not a special business.

The one last hint we know for sure is they are the 1 company NTAP talks about climate mpetmg with.

Tinker
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No. of Recommendations: 4
Guys:-

Just addressing a couple of things...
1) Where did I get the S&M % from showing 48% and 42% and target of 25%
From their earnings report presentation slides:-
Q3: https://seekingalpha.com/article/4128229-pure-storage-2018-q...
Slides 9 and 14

2) Thoughts on NTAP
I have held NTAP and EMC. I liked them both and they were both very good to me. They got killed for 2 reasons - they didn't manage the transition from on premise to cloud / data center and they stuck with spinning disks and hybrid models for too long.
Pure Storage has leapt over this transition issue and is AFA and next generation AFA from the start.

As much as I was invested in NTAP and EMC I have exited both as overall single digit growth rates in no way compares to high double digit growth at Pure which is unencumbered by the drag factor of legacy hard disk businesses.

The best I can compare it to is choosing to invest in Gilead, Celgene, AbbVie or Amgen with fully patent protected high margin high growth products and zero off patent declining "classic" brands versus GSK or Pfizer etc which is full of these established products. In other words the difference of a double digit world or a single digit world. It's that clear.

I like NTAP and wish them well but they are carrying around an albatross with their legacy business.

Pure offers the investment opportunity that EMC and NTAP offered 10 years ago before flash storage existed.

Ant
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No. of Recommendations: 5
As much as I was invested in NTAP and EMC I have exited both as overall single digit growth rates in no way compares to high double digit growth at Pure which is unencumbered by the drag factor of legacy hard disk businesses.

Ant:

I think you encapsulated a large part of the investment thesis in that sentence.

Let's look at what their CEO said:

https://seekingalpha.com/article/4128257-pure-storages-pstg-...

Charles Giancarlo

Look, I think that NetApp obviously had a great quarter and my hats off to George and the entire team over there. But I’ll remind you that on an overall basis, on a total company basis, we’re growing much, much faster. And if you have a large installed base, as they do, simply replacing your existing environment with flash is going to produce flash revenues that look much greater. But on an overall growth basis, we’re much higher and I expect that to continue. And I think it’s a single storage market at this point in time. I think you should be looking at companies from a total revenue perspective.


I find him to be very respectful of NTAP....not trying to rile the lion.....but no mistake, he is driven to grow this business and take market share.
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I’ve never seen as consistent a multi bagger sector as data storage in the last 10 years love investing in a good sector,it reduces the chances of picking the wrong stock. Also love stocks where company is transitioning to profitability, because some tech companies are never able to sell their stuff except at a loss. Profitability can not be assumed


everyone is asleep at the wheel on this fundamental and huge secular trend. maybe not everyone but for sure most see it as entirely a hardware based commodity
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They got killed for 2 reasons - they didn't manage the transition from on premise to cloud / data center and they stuck with spinning disks and hybrid models for too long. that translates fairly well to the car business .Especially the absurd hybrids, a loser for every business except the special case of locomotives ( can you imagine the size and cost of a diesel transmission for locomotives?)
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They got killed for 2 reasons - they didn't manage the transition from on premise to cloud / data center and they stuck with spinning disks and hybrid models for too long. that translates fairly well to the car business .Especially the absurd hybrids, a loser for every business except the special case of locomotives ( can you imagine the size and cost of a diesel transmission for locomotives?)

Yeh it just delays the inevitable but the day of reckoning always comes...
Remember APS from Kodak and the film industry to try and stave off digital?
Remember Minidisks to try and stave off walkman and diskman players from music storage devices?

The list goes on.
Ant
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No. of Recommendations: 1
The film and entertainment media industry is a textbook example of people being strongly against every innovation (or in fact any change) that later turned out to make millions for them. Starting with "talkies' now going into 4K. Even silent films were resisted by stage actors even though movies turned out to pay a lot more than the stage.

Yes the effects of disruptive innovation on incumbents continues to play out,over and over . It has made for a comfortable retirement , I wish I had figured it out 20 years earlier. In many cases it is a near sure thing,something uncommon in markets, the only problem being when to get in and whether you are paying too much. If it is a huge multi decade trend like e-commerce , nearly any early price of a winner will will seem cheap later.
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