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Shares of data storage company Nutanix Inc. were in free-fall today after it missed expectations on revenue and posted guidance for the next quarter that was some way short of Wall Street’s forecasts.

The company, which sells hyperconverged information technology infrastructure that integrates compute, storage and networking components, reported a third-quarter loss before certain costs such as stock compensation of 56 cents per share on revenue of $287.6 million, down from the $289.4 million in revenue it reported a year ago.

Wall Street had been expecting the company to report a loss of 60 cents per share on revenue of $297 million.

Nutanix executives were quick to blame the revenue shortfall on the company’s ongoing transition to a subscription licensing model, which they said was complicated by a need to retrain sales staff. But things could have been worse, as those efforts are progressing faster than expected, officials said.

“Our transition to subscription is ahead of schedule,” Nutanix Chief Executive Officer Dheeraj Pandey (pictured) said in a conference call.

That may be so, but Nutanix warned that things are likely to get uglier before an improvement in its bottom line arrives. The company said it’s expecting a loss of 65 cents per share on revenue of $280 million to $310 million for the fourth quarter.

That was enough to set the alarm bells ringing, as Wall Street had forecast a much lower loss of 49 cents per share on revenue of $332.9 million. Investors scattered like rats, with Nutanix’s stock falling almost 18% in after-hours trading. Update: On Friday, shares didn’t fare quite so badly but still fell 14%.

Nutanix officials, most likely expecting the negative reaction from shareholders, tried their best to shine a positive light on the company’s situation, however. For example, they pointed out that about 65% of the company’s billings in the third quarter came from subscriptions. As a result, Nutanix’s subscription revenue topped $168 million, up 110% from a year ago.

Duston Williams, Nutanix’s chief financial officer, said in the call the company is expecting several long-term benefits from its transition to a subscription model. These include a more predictable revenue stream, lower marketing costs and the ability for customers to pay for technology over an extended period of time.

Still, he noted that any transition of this nature also causes friction. For example, the duration of Nutanix products sold via subscription is just four years, compared with five years for products sold via traditional sales models. In addition, subscription revenue from product and support sales is deferred, which leads to a drop in upfront revenue, Williams said.

Another problem for Nutanix is that it needs time to retrain sales staff, distributors, channel partners and customers on its new business model, he added.

One problem Nutanix failed to mention is the increased competition it’s facing in its core hyperconverged infrastructure market, Charles King, an analyst with Pund-IT Inc., told SiliconANGLE.

“The company’s central problem is that the hyperconverged markets where it was an early innovator are getting crowded with larger competitors that are often also Nutanix partners,” King said.

Those larger competitors have an advantage over Nutanix, King said, because they have much deeper relationships both with existing and prospective customers. In contrast, the smaller Nutanix is just one among “several flavors of hyperconverged tech” that its partners can offer to their clients.

“Nutanix would be better served by partners willing to evangelize its solutions, but that outcome seems increasingly unlikely,” King said. “Looking for other outlets and opportunities is a wise course for Nutanix to pursue, but it’s not clear to me which direction or how long the company has to affect those changes.”

King wasn’t the only one to raise concerns about the growing competition Nutanix faces. Earlier this week, Morgan Stanley analyst Katy Huberty reduced her price target for Nutanix because of the pressure it faces from larger rivals such as Dell Technologies Inc. and a general slowdown in the broader storage market. That caused Nutanix’s stock to fall 10%, before today’s losses.

“Like all suppliers of on-premises technology, Nutanix is struggling with more and more enterprise load moving to the cloud, and in its case less on-premise storage solutions are being purchased,” said Holger Mueller, principal analyst and vice president of Constellation Research Inc. “At the same time shifting to a subscription model does not help the vendor from an overall financial key performance indicator perspective. Nutanix needs to find ways to participate on the IT spending growth, and find a way with products and offerings to get a share of the growth that is happening on the public cloud side.”

During the quarter, Nutanix announced a new global partnership with Hewlett Packard Enterprise Co. to host its Nutanix Enterprise Cloud software on HPE’s server technology. Pandey recently stopped by theCUBE, SiliconANGLE’s video studio, to discuss the prospects of that partnership:

Photo: SiliconANGLE