Shares of enterprise data storage company Pure Storage surged Thursday after the company reported fourth-quarter earnings and sales that exceeded expectations. Pure Storage stock also benefited from a stronger-than-expected forecast for the current quarter.
Pure Storage reported late Wednesday adjusted earnings of 50 cents per share on sales of $789.8 million for its fiscal fourth-quarter, which ended Feb. 4. On average, analysts projected the Santa Clara, Calif.-based company would post adjusted earnings of 44 cents per share on sales of $784 million, according to FactSet. The quarter was the final for Pure Storage's fiscal 2024.
Pure Storage soared more than 24% to close at at 52.51 on the stock market today. That marked the company's highest-ever close.
Investors reacted much more positively than they did to Pure Storage last earnings report in November. Shares slid 12% following that report, where the company warned that its shift to a subscription model was creating revenue headwinds.
This time around, "Pure delivered healthy results and offered an encouraging double-digit revenue growth outlook — along with modest margin expansion — despite headwinds from a business model transition," William Blair analyst Jason Ader wrote to clients Thursday. William Blair reiterated an outperform, or positive, outlook for Pure Storage stock.
Pure Storage Forecast Tops Views
There are still some challenges for the company, and the broader storage market. That's evidenced by the 2.5% year over year decrease in Pure Storage's sales for the quarter. Sales increased 13% year over year in the company's October quarter. Adjusted earnings also dipped from 53 cents per share in the January 2023 quarter to 50 cents in the most recent period.
But for the current quarter ending in April, Pure Storage guided for sales of $680 million. That topped the $670 million that analysts were previously projecting for the quarter, according to FactSet. It would mark a 15% increase from the same period a year earlier.
Wedbush Securities analyst Matt Bryson wrote to client Thursday that there was a "fair amount of uncertainty" about the outlook Pure Storage would provide, coming into the report.
"What Pure reported wasn't perfect," Bryson wrote. "While Q4 results exceeded prior consensus as did the FQ1'25 guide, the FY'25 outlook was shy of prior expectations. Having said this, we think the positives outweighed the negatives."
The positive include strong underlying metrics and a "good probability" that Pure Storage can exceed its outlook, Bryson wrote.
Platform Approach Boosted By AI Demand
The 14-year-old Pure Storage is a leader in flash-based data storage hardware, and offers software tools to manage data storage. The company is focused on selling a broader subscription storage platform for customers, with corporate users charged based on how much storage they consume. In its fiscal fourth quarter, Pure Storage said subscription services revenue increased 24% year over year, to $328.9 million.
"Pure's strategy to consolidate data storage using a single operating and management environment for the majority of storage requirements just makes more sense than managing multiple, different and disparate system environments," Chief Executive Charles Giancarlo told analysts Wednesday night.
But the shift means that hardware and services revenue that used to be recognized immediately is instead recognized over time. The company said that change is providing a temporary revenue headwind.
Pure Storage also believes its platform strategy will benefit as more companies adopt data-hungry generative artificial intelligence products. A "fragmented data storage environment" could make it more difficult for companies to train and operate artificial intelligence models, Giancarlo told analysts.
"The single operating and management environment of the Pure platform across protocols and price performance ranges makes accessing data easier," Giancarlo added.
Pure Storage Stock: Technical Ratings
The surge for Pure Storage stock on Thursday adds to a strong run for the company. Pure Storage stock has now gained more than 115% in the past 12 months.
Coming into the report, Pure Storage stock had an IBD Composite Rating of 95 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The score made Pure Storage the highest rated stock in IBD's Computer-Data Storage Group.
Further, Pure Storage's IBD Relative Strength Rating was 86 out of 99. The rating compares a stock's price movement over the last 52 weeks with that of others in IBD's database.
