Why Pivotal Software Stock Plunged Today

What happened

Shares of Pivotal Software (NYSE: PVTL) dropped 19.9% on Thursday despite solid second-quarter 2018 results from the cloud-native platform provider.

On the former, Pivotal's quarterly revenue jumped 30% year over year to $164.4 million, which translated to an adjusted (non-GAAP) net loss of $14.8 million, or $0.06 per share, narrowed from a $0.13-per-share loss in the same year-ago period. Analysts, on average, were looking for a wider net loss of $0.09 per share on lower revenue of $158.2 million.

So what

Pivotal Software's top-line growth was primarily driven by a 51% increase in subscription revenue, to $97.5 million, while services revenue climbed a more modest 8.9%, to $66.9 million.

"We remain focused on customer success and winning new customers with our differentiated, multi-cloud platform," said Pivotal CEO Rob Mee. "Organizations that work with Pivotal learn to build iteratively, deliver continuously and operate securely and reliably at scale."

What's more, Pivotal Software told investors to expect third-quarter revenue of $163 million to $165 million, with an adjusted net loss per share of $0.09 to $0.08. Both figures landed ahead of consensus estimates, which predicted a loss of $0.10 per share on revenue near the low end of Pivotal's guidance range.

Now what

Finally, looking ahead to the full fiscal-year 2019, Pivotal called for revenue of $647 million to $653 million, with an adjusted net loss per share of $0.36 to $0.34. Here again, those ranges were ahead of expectations for a loss of $0.39 per share on revenue of $646.8 million.

So why the decline? For one, note that Pivotal Software shares were already up more than 90% from the company's initial public offering in April, likely leaving some investors tempted to take profits on the news today. In addition, some on Wall Street expressed concerns today after Pivotal's calculated billings -- a sales metric calculated by taking recognized revenue plus the change in deferred revenue -- fell short of expectations, potentially indicating that its growth may slow in the coming quarters.

Still, I'm not convinced Pivotal's punishment fits that crime, as its revenue tends to be relatively chunky this early in its long-term growth story. If it can prove its momentum is sustainable, I suspect the pullback won't last long.

10 stocks we like better than Pivotal Software, Inc. Class AWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Pivotal Software, Inc. Class A wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.