Pure storage: Subscription revenue is growing

Pure storage (PSTG -2.23%)a leader in data storage solutions, reported its earnings for the second quarter of fiscal year 2025 on August 28, 2024.

The company beat its own guidance, posting revenue of $763.8 million versus the $755 million expected, reflecting an 11 percent increase over last year. Non-GAAP operating income came in at $138.6 million versus the anticipated $125 million.

This places Pure Storage in a favorable position, reflecting robust operational execution and strategic growth, particularly in subscription services.

Source: SEC documents. Expectations based on management guidance as provided in the 2024-05-29 earnings report. Pts = percentage points.

Understanding pure storage

Founded in 2009, Pure Storage offers all-flash data storage solutions designed for high performance, consistent high bandwidth and superior energy efficiency. Its customer-centric subscription service model has driven significant revenue growth. Key areas of focus include artificial intelligence (AI) support, expansion of subscription services, and sustainability efforts.

Recently, the company has focused on expanding its subscription services and improving its AI-ready data storage solutions. These strategic focuses are critical to continued market share capture and competitive differentiation in a rapidly evolving technology landscape.

Quarterly highlights

This quarter, Pure Storage achieved notable milestones in subscription revenue and operational performance. Subscription services revenue reached $361.2 million, marking a 25% year-over-year increase. This was driven by strong customer adoption of Evergreen//One, which provides scalable on-demand storage.

In terms of total revenue, the company reported $763.8 million, beating the anticipated $755 million, a reflection of sustained demand for its storage solutions. Non-GAAP operating income was $138.6 million, about 11% above management’s guidance of $125 million.

Pure Storage has also made significant progress in its hybrid cloud and AI initiatives. New cloud-native solutions such as Portworx and Pure Fusion have seen increased adoption. Moreover, a partnership with Nvidia (NVDA -2.10%) have strengthened their AI storage capabilities, evident in the certification for the Nvidia DGX SuperPOD.

The company’s sustainability efforts have also taken a step forward. The third environmental, social and governance (ESG) report highlighted the significant reduction in energy consumption of Pure Storage platforms, consuming up to 10 times less energy than traditional hard disk systems. The FlashBlade//E, designed for lower power consumption, reinforced this environmental commitment.

There were some challenges, including pressure on IT budgets, partly due to a focus on AI spend and slower-than-expected Total Contract Value (TCV) sales for the cloud-based Evergreen//One service. Ongoing market conditions could test Pure Storage’s ability to sustain this pace of revenue growth.

Looking ahead

For the upcoming third quarter of fiscal 2025, management guided for revenue of $815 million, projecting annual growth of 6.8%. Non-GAAP operating income is expected to be $140 million, with a margin of 17.2%. This cautious but optimistic outlook demonstrates the company’s confidence in maintaining steady growth in evolving market conditions.

Management largely reiterated full-year guidance of $3.1 billion in revenue and $532 million in non-GAAP operating income. Full-year TCV sales are now targeted at $500 million, down from $600 million in the previous quarter’s guidance. Investors should watch the evolution of Pure Storage’s subscription services and AI integrations, which could serve as key growth drivers in the coming quarters.