Needham lowers Pure Storage stock PT, expects pressure from elongated sales cycles By Investing.com

On Thursday, Needham Financial Services revised its financial outlook for Pure Storage (NYSE: ), lowering its price target to $62 from $80 previously while maintaining a buy rating on the stock. The revision comes on the heels of Pure Storage’s Q2 FY25 performance, which despite beating expectations, led to expectations of weaker-than-expected Q4 revenue.

Pure Storage’s unchanged fiscal 2025 guidance indicates that fourth-quarter revenue may miss previous estimates. The revision comes after management announced extended sales cycles for Evergreen deals greater than $5 million.

As a result, Pure Storage has revised its total contract value (TCV) sales growth forecast to 25% year-over-year, to $500 million, down from the previously forecast 50% year-over-year growth and $600 million target.

Pure Storage has generated $157 million in TCV sales to date, which is below the company’s internal projections. This trend of longer 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 management noted continued progress with its lead hyperscaler candidate, among other potential partners. The company remains confident in its strategy and has confirmed its commitment to announce 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 the second quarter of fiscal 2025, to $764 million. The company’s annual recurring revenue from subscription services also rose 24%, to over $1.5 billion.

However, Piper Sandler revised its price target on Pure Storage from $60 to $56, maintaining a neutral stance due to growth concerns and ongoing negotiations with a mega developer.

Despite the longer deal cycles of the larger Evergreen//One agreements, Pure Storage has maintained its goal of $3.1 billion in annual revenue. The company also introduced next-generation Fusion architecture and AI storage as a service for GPU clouds, demonstrating its commitment to innovation.

Additionally, Pure Storage added 261 new customers in the second quarter and is focused on replacing traditional storage in hyperscale data centers. However, the company expects a slight decline in product gross margins in the second half of the fiscal year due to the shift 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 revision of Pure Storage (NYSE:PSTG) financial outlook and the company’s revised outlook, it is appropriate to consider additional insights from InvestingPro. Pure Storage’s current market cap is around $19.44 billion, reflecting investors’ valuation of the company. Despite the challenges outlined, InvestingPro’s advice highlights that Pure Storage is expected to see net income growth this year, and analysts have revised their earnings upwards for the coming period, indicating a positive outlook for the company’s profitability.

Despite the company’s high P/E ratio of 202.09, it is moderate with a P/G ratio of 0.53 over the past twelve months as of Q1 2025, indicating growth potential when paired with earnings expectations. Furthermore, with revenue growth of 7.8% over the past twelve months, Pure Storage is showing resilience in its financial performance. It is also worth noting that Pure Storage has a strong cash position, holding more cash than debt on its balance sheet, which could provide a buffer against market uncertainty.

For those looking to delve deeper into Pure Storage’s financial health and future prospects, InvestingPro offers additional tips, with a total of 15 available, that provide a comprehensive analysis for current or potential investors. To explore these tips further, one can visit the Pure Storage dedicated page on InvestingPro.

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