Investment Thesis, Valuation and Risks
Pure Storage, Inc. (PSTG)

Investment Thesis

(1) Pure play positioning for continued adoption of all-Flash primary storage with purpose-built (vs. traditional HDD-based) storage architecture leveraging the company’s fine-grained data reduction technology (multi-stage dedupe + compression). (2) TAM expansion with new FlashBlade and FlashArray//C-series solution leveraging QLC NAND Flash, as well as file offerings via CompuVerde acquisition. (3) Progression to sustained profitability. (4) Increasingly visible recurring subscription business (remaining performance obligations, or RPO balance > deferred revenue). We maintain our Overweight rating on shares of PSTG given our positive views on the company’s architectural differentiation, increasing portfolio selling motion, and expanding subscription contributions.

Target Price Valuation for PSTG: $40.00 from NC

Our price target is $40, which is 3.5x EV/sales on our CY2023 estimate.

Risks to Our Price Target and Rating for PSTG

Risks include: (1) Overall Market Weakness. Continued weak enterprise storage market with low/zero growth expected over the next few years will likely require all-Flash (and Pure) to be significant share gainers. (2) Execution. Risk from Pure's ability to significantly ramp its quota-bearing headcount as well as sales productivity to achieve its target model. In our view, one of the biggest risks to Pure is growing organization while retaining culture. (3) Competition. Increasingly intense competition in the all-Flash array market from incumbents' all-Flash solutions, other startups' all-flash solutions as well as hybrid array vendors' all-Flash solutions. In addition, there are longer-term competitive threats from public cloud and alternative architectures (i.e., hyper-converged infrastructure).

All estimates/forecasts are as of 6/8/2022 unless otherwise stated.