Pure Storage Inc. missed expectations on earnings and revenues for the second straight quarter today, sending its stock plunging more than 18% in after-hours trading. The decline continued after the opening bell on Wednesday, with PSTG down 22% at mid-day.

The company said it continues to grow at double the industry average rate, but investments in its sales force, combined with the increasingly unpredictable nature of large enterprise contacts, caused it to undershoot its own guidance for the quarter.

Revenue for the quarter ended April 30 rose 28% from a year ago, to $326.7 million, but that fell below analysts’ consensus estimates of $333 million, according to FactSet. The net loss of $27.6 million was 70% larger than the same quarter a year ago, and the per-share loss of 11 cents came in below analyst expectations of 8 cents.

The company said that it now expects annual sales of between $1.7 billion and $1.77 billion, with operating margins of between 1.5% and 5.5%. Both are below previous projections of $1.74 billion to $1.81 billion with margins of 3% to 7%.

“While we are growing above the industry average, we were not satisfied with our performance this quarter,” said Chief Executive Charles Giancarlo (pictured).

Executives blamed the shortfall on costs incurred by a 40% growth in its sales force in the quarter along with what Giancarlo described as a “lumpier” closing process. The company has been pivoting its direct-sales efforts toward large enterprises over the past year, with channel partners picking up more of the small and midsized businesses. “The shape of our business is changing materially and this has some unpredictability” associated with it, Giancarlo said.

Full speed ahead

Executives expressed confidence in the long-term soundness of the enterprise strategy. Average deal sizes in the quarter were twice historical averages and Pure added more than 100 enterprise customers during the three-month period. “We’re not signaling any major changes in our approach,” Giancarlo said.

However, in an interview with SiliconANGLE after the earnings call, Giancarlo acknowledged that the company couldn’t afford a third straight earning miss. “We brought our guidance down to be on the safe side,” he said.

Constellation Research Inc. Analyst Holger Mueller said the next few months will be crucial to reestablishing the company’s momentum. “It looks like something is not working right with the Pure Storage growth engine; it seems to be sputtering,” he said. “The product portfolio remains attractive, but the next quarters will tell.”

Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, had a more positive outlook. “I believe this is a momentary blip driven by changes in the sales force at Pure and believe the company is being conservative with its outlook,” he said. “Pure is ahead of the curve in most offerings and think the company will get on track.”

Executives expressed confidence that the company’s potential to sell into multiple $50 billion markets presents almost unlimited opportunity. “We’re still a small player in a very large market, so it’s up to us to capture that share,” Giancarlo told analysts.

Despite recent setbacks, investors have shown a lot of confidence in Pure Storage’s all-flash storage story this year. After the company blamed a “process breakdown” at a contract equipment manufacturer for its fiscal fourth-quarter miss in February, investors initially knocked shares about 5%, but appeared to be in a forgiving mood as they bid the stock up 20% over the following two months. Even after Tuesday’s earnings miss, the stock is still trading slightly higher than at the beginning of the year.

However, there are also signs that investor patience may be wearing thin. Shares dropped 15% immediately following today’s earnings release and continued to drift lower after the earnings call. “When you provide news that’s below consensus, you expect the price to go down and it did,” Giancarlos told SiliconANGLE. “We now clearly have to deliver on the new expectations that we just set.”

Despite declining margins, competitors aren’t pressuring Pure any more than in the past, the CEO said. “The competitive environment hasn’t changed much,” Giancarlo said. The lowered margin guidance is more a reflection of the company’s need to buy flexibility than a sign of heightened competitive pressure.

“We’re still growing three times faster than our next nearest competitor, which means we’re taking share and doing well,” he said. Two years from now, he hopes, these bumps in the road will be seen as a diversion that “allowed the company to refocus on what’s important and set us up to grow for the next several years.”

Photo: SiliconANGLE