Pure Storage is a Steady Eddie Growing Storage Play

Key Points

• Pure Storage is a boring pureplay on data storage growth but anyway you slice it, it's still growing at a robust double-digit rate
• Over half of the Fortune 500 are Pure Storage customers
• Pure Storage’s value proposition makes it a cost-efficient solution for enterprises as they tighten their spending during uncertain macroeconomic conditions

Falling flash memory prices are bad for storage and chip companies, but it actually improves Pure Storage’s margins as they are a consumer of storage, not a producer

Enterprise data storage solutions provider Pure Storage, Inc. NYSE: PSTG stock has been buoyant this year throughout the semiconductor bust cycle. Data storage chip makers and producers experienced normalization as companies pulled back on spending after a strong 2021 rebound. Pure Storage managed to hold its ground for the most part in a trading range between $25 to $30. Data storage is about as exciting as fire extinguishers. They are a necessity.

Any way you slice it, Pure Storage is profitable and growing. Over half of the Fortune 500 are Pure Storage clients in Meta Platforms NASDAQ: META. The Company offers all-flash, automated, hybrid cloud storage solutions with a Pure-as-a-Service (PaaS) subscription model that now accounts for 35% of its revenues. The Company distinguishes itself as a modern data management company as it converts more customers to its pay-for-consumption subscription model. While storage companies like Western Digital NASDAQ: WDC, Seagate Technology NYSE: STX , and Micron Technology NASDAQ: MU suffer from declining flash memory prices, Pure Storage actually benefits from the cheaper costs helping to bolster its margins.

Q3 Fiscal 2022 Earnings Release

On Nov. 30, 2022, Pure Storage released its fiscal third-quarter 2022 results for the quarter ending October 2022. The Company reported an earnings-per-share (EPS) profit of $0.31 excluding non-recurring items versus consensus analyst estimates of $0.25, a $0.06 beat. Revenues grew 20.1% year-over-year (YoY) to $676 million beating analyst estimates of $672.08 million. Subscription service revenues rose 30% YoY to $244.8 million. Subscription annual recurring revenues grew 30% YoY to $1 billion.

Pure Storage CEO Charles Giancarlo commented, "An ever-growing number of customers around the world trust Pure to provide the most advanced, reliable, and energy-efficient technology to satisfy their mission-critical data storage and management needs. He continued, “With the power of our unique Flash-optimized technology and differentiated business model, we look forward to managing increasingly more of their data storage requirements."

Inline Guidance

The Company issued inline guidance for Q4 2022 of revenues coming in between $810 million versus $812.78 million consensus analyst estimates with a non-GAAP operating margin of 16%. The Company expects longer sales cycles due to the uncertain economic climate as companies curb their spending.

Weekly Symmetrical Triangle Setting Up

The weekly candlestick chart on PSTG has been forming a tightening trading range comprised on lower highs and higher lows. This creates a falling upper trendline and a rising lower trendline as they continue to tighten towards the apex where both trendlines meet.

This is a symmetrical triangle formation that will eventually resolve with a sustained breakout through the upper falling trendline or a sustained breakdown through the lower rising trendline. PSTG has choppy bumpers with a weekly 20-period exponential moving average overlapping the weekly market structure low (MSL) buy trigger at $29.17. The weekly market structure high (MSH) sell triggers under $31.11.

This is the make-or-break channel which continues to get tighter. Despite beating earnings estimates, shares saw very heavy selling volume as it make a higher low. Pullback support levels remain at the $29.17 weekly MSL trigger, $28.12, $27.33, $26.30 lower triangle trendline, and $25.36.

CEO Speak

CEO Charlie Giancarlo points out that Pure Storage leads the industry for product innovation after releasing a record number of new products ranging from the FlashArray//XL to FlashBlade S, and Portworx data services. They were again ranked highest in Gartner’s Magic Quadrant and the leader for primary storage and distributed file systems and object storage for the nine consecutive year.

He hinted at some major new clients closed in the quarter including a global telecom provider, a payments processor, and a major energy provider. Enterprise customers specifically chose Pure for its low power space, cooling performance, and energy savings. Many large telecom providers bought into Pure Storage’s portfolio to support 5G deployment and infrastructure modernization projects.

He did point out they are expecting longer sales cycles due to macroeconomic conditions as companies are being more conscious with their spending. Pure also benefits from that also as CEO Giancarlo stated, “The combination of Pure's Evergreen offerings, best-in-class power space and cooling, and operating simplicity results in significantly lower operating costs for enterprise customers.

Given challenging economic and energy situations around the world, more enterprises are focused on the total cost of ownership and the area where Pure excels.” Pure Storage continues to grow but its shares have been rangebound for the year a Santa Claus rally could fuel a breakout as its candlestick chart moves closer to the apex point.