On Thursday, Needham, a financial services firm, adjusted its financial outlook for Pure Storage (NYSE:PSTG), reducing the price target to $62 from the previous $80 while maintaining a Buy rating for the stock. The revision follows Pure Storage's second-quarter fiscal year 2025 performance, which, despite outperforming expectations, led to a forecast suggesting weaker fourth-quarter revenues than initially anticipated.
The unchanged full-year 2025 guidance provided by Pure Storage indicates that revenues in the fourth quarter may not meet prior estimates. This adjustment comes after management reported extended sales cycles for its $5 million-plus Evergreen deals.
Consequently, Pure Storage has revised its Total Contract Value (TCV) sales growth expectations to 25% year-over-year, reaching $500 million, a decrease from the previously projected 50% year-over-year growth and $600 million target.
Year-to-date, Pure Storage has achieved $157 million in TCV sales, which falls short of the company's internal projections. This trend of lengthening sales cycles for larger deals is not unique to Pure Storage but is reflective of the broader Infrastructure Software sector.
Despite these challenges, Pure Storage's management has indicated ongoing progress with its primary hyperscaler candidate, among other potential partners. The company remains confident in its strategy and has reiterated its commitment to announcing a hyperscaler design win by the end of the year, signaling potential growth opportunities ahead.
In other recent news, Pure Storage reported an 11% increase in revenue for Q2 of fiscal year 2025, reaching $764 million. The company's subscription services annual recurring revenue (ARR) also rose by 24%, exceeding $1.5 billion.
Piper Sandler, however, revised its price target for Pure Storage from $60 to $56, maintaining a neutral stance due to growth concerns and ongoing negotiations with a hyperscaler.
Despite longer deal cycles for larger Evergreen//One agreements, Pure Storage reiterated its full-year revenue target of $3.1 billion. The company also introduced next-generation Fusion architecture and AI storage-as-a-service for GPU clouds, further demonstrating its commitment to innovation.
In addition to this, Pure Storage added 261 new customers in Q2 and is focusing on replacing traditional storage in hyperscaler data centers. However, the company projects a slight decrease in product gross margins in the second half of the fiscal year due to the transition to all-flash solutions. Despite these challenges, Pure Storage's financial position remains strong with $1.8 billion in cash and investments.
InvestingPro Insights
Following Needham's adjustment of Pure Storage's (NYSE:PSTG) financial outlook and the company's own revised projections, it's pertinent to consider additional insights from InvestingPro. Pure Storage's current market capitalization stands at approximately $19.44 billion, reflecting investor valuation of the company. Despite the challenges outlined, InvestingPro Tips highlight that Pure Storage is expected to see net income growth this year, and analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on the company's profitability.
The company's P/E ratio, although high at 202.09, is tempered by a PEG ratio of 0.53 for the last twelve months as of Q1 2025, indicating potential for growth when paired with earnings expectations. Moreover, with a revenue growth of 7.8% over the last twelve months, Pure Storage is showing resilience in its financial performance. It's also worth noting that Pure Storage has a strong cash position, holding more cash than debt on its balance sheet, which may provide a buffer against market uncertainties.
For those seeking a deeper dive into Pure Storage's financial health and future prospects, InvestingPro offers additional tips, with a total of 15 tips available, providing a comprehensive analysis for current or potential investors. To explore these further, one can visit the dedicated page for Pure Storage on InvestingPro.
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