VMWare Inc.’s third-quarter sales and earnings beat analysts’ estimates on healthy 11% sales growth as the company’s message of helping customers move to multicloud environments appeared to be hitting home.

“It’s clear that multicloud will be the model for digital business for the next 20 years,” said Chief Executive Raghu Raghuram (pictured), who took the helm of the company just over six months ago.

Revenue rose to $3.19 billion from $2.86 billion a year earlier, better than the average analyst estimate of $3.12 billion. Net income rose 3% from a year ago, to $725 million, or $1.72 per diluted share.

Subscription and software-as-a-service annual recurring revenue, which has been a key indicator of VMware’s transition from a product to a service provider, increased 25% to $3.31 billion. That’s better than the 23% growth the company reported in its previous quarter, a surprise slowdown that knocked the stock back 6% in one day. However, quarterly subscription and SaaS revenue came in below expectations at $820 million, compared with analysts’ consensus of $828 million.

That apparently stuck in the craw of investors, who traded the stock slightly lower after-hours following a generally down day for tech stocks.

The company has been spending heavily on spending on research and development, sales and marketing and general and administrative expenses, VMware said. Its spending on travel and entertainment is also approaching pre-pandemic levels. The company said its short-term outlook is bright.

“Our performance in Q3 reflects strong year-over-year growth in major product categories,” said Chief Financial Officer Zane Rowe. “We think the second half looks really good. We’re encouraged about what we’re seeing heading into Q4 and we expect that momentum to continue into the new year.”

VMware increased its forecast for 2022 revenues to $12.82 billion, up 9% from this year. It said fourth-quarter revenue should come in at $3.51 billion, up 7% from last year, with a profit of $1.96 a share. The revenue forecast was below Wall Street consensus estimates of $3.59 billion, although the profit beat analysts’ $1.89-a-share estimates.

For the full year, VMware is expecting a 12% growth in subscription, software-as-a-service and license revenue, to $6.3 billion. Raghuram said the subscription business generates a flywheel effect, in which greater adoption leads to more subscription sales. The company also raised full-year margin guidance to 30% and earnings per share to $7.19. It said it expects full-year 2023 revenue to grow in the high single digits.

Photo: SiliconANGLE