The News: Helped by strong growth of its Evergreen storage as a service (STaaS) program and subscription sales, Pure Storage reported revenue of $762.8 million in the third quarter (Q3) for 13% year-over-year (YoY) growth. However, the rapid increase in consumption spending that is likely to help Pure in the long term prompted it to issue disappointing guidance for fourth quarter (Q4) revenue. You can read the release on the Pure Storage website.

Pure Storage Q3 Earnings Growth Fueled by Storage as a Service

Analyst Take: Pure CEO Charles Giancarlo said the Evergreen//One STaaS and Evergreen//Flex subscription programs are expected to more than double annual revenue to nearly $400 million this year. Subscription annual recurring revenue (ARR) of $1.3 billion and subscription services revenue of $309.6 million each increased 26% YoY. Pure posted $70 million net income and operating profit of $169.1 million for the quarter. Both its revenue and earnings beat financial analysts’ expectations.

Those numbers are good news. The bad news is that the mix shift toward opex versus capex will likely hurt Q4 results. That, plus a $410 million sale to a telco that does not start until next year resulted in Pure’s lower than expected revenue forecast of $782 million for Q4—down from last year and below the consensus estimate of $919 million. Pure forecasts its annual revenue to be $2.82 billion, up 0.7% from last year but also short of the $2.96 billion consensus. Because of the guidance miss, Pure’s stock price tumbled after the markets closed Wednesday.

While guidance disappointed, Pure’s Q3 results were positive. Its revenue beat the consensus estimate by $1.3 million, and Pure’s numbers stacked up well compared with storage competitors that reported earnings earlier this week. NetApp revenue declined 6.0% YoY and HPE storage revenue fell 12%. Pure added 353 customers in Q3 and has more than 12,000 total. Pure execs said its FlashBlade file storage and Portworx container-native storage also had record quarters, although they did not share the numbers.

Pure Storage Q3 earnings highlights:

Revenue $762.8 million, an increase of 13% YoY
Subscription services revenue $309.6 million, up 26% YoY
Subscription ARR $1.3 billion, up 26% YoY
Remaining performance obligations (RPO) $2.0 billion, up 30% YoY
Generally accepted accounting principles (GAAP) gross margin 72.5%; non-GAAP gross margin 74.0%
GAAP operating income $74.2 million; non-GAAP operating income $169.1 million
GAAP operating margin 9.7%; non-GAAP operating margin 22.2%
Operating cash flow $158.4 million; free cash flow $113.4 million
Total cash, cash equivalents, and marketable securities $1.35 billion
Returned approximately $22.4 million in Q3 to stockholders through share repurchases of 0.6 million shares

Pure Storage Q4 and FY24 Guidance:

Revenue Q4 FY 2024: $782 million
Revenue FY 2024: $2.82 billion
Non-GAAP operating income Q4 FY 2024: $150 million
Non-GAAP operating income FY 2024: $450 million
Non-GAAP operating margin Q4 FY 2024: 19%
Non-GAAP operating margin FY 2024: 16%

Takeaways: STaaS, Unstructured Data, Container Storage Offers Growth Potential

Despite the expected short-term revenue downturn, Pure looks strong in several key areas. Like Dell APEX, HPE GreenLake, and NetApp Keystone, Pure’s Evergreen STaaS appeals to customers who want cloud-like experience even if their storage is on-premises. Evergreen’s doubling of revenue this year shows Pure is making significant progress in that area. Pure added SLA guarantees for No Data Migration, Zero Data Loss, and Power and Space Efficiency across its Evergreen programs during the quarter. Pure also will pay for its customers’ power and rack space through Evergreen//One and Evergreen//Flex subscriptions, taking on the costs of power and rack units for on-premises storage.

Also, FlashBlade is used for unstructured data, which is already the fastest growing data type and will gain much more traction due to generative AI. The container-native storage market that Portworx addresses is nascent but has the potential to spike as more applications move to containers and Kubernetes.

Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed Pure Storage’s latest earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.