Why Nimble Storage, Pure Storage Are In Free Fall

• Shares of Nimble Storage Inc (NYSE: NMBL) lost nearly 50 percent on Friday, hitting a new 52-week low of $10.30.
• Nimble Storage reported a weaker-than-expected third quarter print and issued a downbeat outlook.
• Wall Street analysts were mostly negative on Nimble Storage, sending shockwaves across the entire sector.

Nimble Storage lost $0.14 per share on revenue of $80.7 million, noticeably below the Street's expectations for a loss of $0.08 per share on revenue of $87.44 million.

Nimble Storage also expects to lose between $0.11 and $0.13 per share in the fourth quarter on revenue of $87 million to $90 million. Wall Street analysts were looking for the company to report a breakeven in earnings on revenue of $99.2 million.

Investors heavily sold Nimble Storage's stock on Friday. The issue lost nearly 50 percent of its value, trading as low as $10.30, marking a new 52-week low.

The company's poor quarterly print and downbeat outlook resulted in investor panic across the sector. Shares of Pure Storage Inc (NYSE: PSTG) lost more than 10 percent and were trading at $14.55, marking a new 52-week low.

Wall Street analysts added fuel to the fire with at least nine research firms downgrading Nimble Storage.

Barclays: Prior Bullish Thesis No Longer Applies

Mark Moskowitz of Barclays downgraded Nimble Storage to Equal-Weight from Outperform with a price target slashed to $15 from a previous $30.

According to Moskowitz, his previous bullish thesis was built on: 1 ) Nimble Storage's consistent execution, 2) market share momentum, 3) a looming shift to Non-GAAP profitability, and 4) an eventual all-flash array entry.

Moskowitz continued that Nimble Storage's third quarter "major miss" calls into question his bullish stance. Specifically, the analyst highlighted the company's plans to revamp its sales and marketing efforts. While this may be the right move to "right the shop," the analyst noted "we have seen this movie before," and that "it can be difficult to get to a positive outcome."

Moskowitz is "concerned" that Nimble Storage's management is inexperienced with revamping a sales strategy which also comes at a "bad time" given the fact that "sleeping giants" and "deep-pocketed incumbents" such as EMC Corporation (NYSE: EMC) and NetApp Inc. (NASDAQ: NTAP) are "sharpening their focus" on the hybrid and all-flash array storage segments.

Finally, Moscowitz recommended that investors wait until mid-2016 to re-evaluate if Nimble Storage's franchise can "find firmer footing and exhibit re-accelerating revenue growth." The analyst also pointed out that it will "interesting to see how fellow upstart Pure Storage "fares in its first earnings call as a public company in early December."

Oppenheimer: 'Sharp' Near-Term Pressure

Ittai Kidron of Oppenheimer downgraded shares of Nimble Storage to Perform from Outperform while removing a previous $33 price target.

According to Kidron, Nimble Storage's results were "disappointing" while its outlook was "well below" expectations. The analyst is "stepping to the sidelines" given: 1) the need for greater sales investment and unknown execution time-frame to drive stronger growth, and 2) competitive concerns from all-flash and hyper-converged vendors.

"Management is moving away from its growth/break-even balancing act and re-accelerating investments to drive growth in both enterprise and commercial," Kidron wrote. "While we view this positively in light of the acute need to build a defensible installed base/growth, this constrains performance at least through FY1H17 and raises questions around cash flow and longer-term positioning."

Bottom line, Kidron is expecting "sharp" near-term pressure on the stock as investors "digest the realigned focus on driving growth while pushing-out break-even."

Elsewhere On The Street

Shares of Nimble Storage were cut to sector perform at RBC Capital
Shares of Nimble Storage were cut to neutral vs buy at UBS
Shares of Nimble Storage were cut to hold at Wunderlich
Shares of Nimble Storage were cut to market perform at Wells Fargo
Shares of Nimble Storage were cut to hold vs buy at Stifel
Shares of Nimble Storage were cut to market perform at William Blair
Shares of Nimble Storage were cut to market perform at Raymond James