Cloud software maker VMware reported a higher-than-expected quarterly profit as it sold more licences to enterprise customers and indicated strong licensing revenue growth would continue into next year.
The company said it expected revenue to grow 15% in 2014 on continued strength in its enterprise licensing business and higher demand for its vCloud Suite of products.
"The guidance for next year is for a stronger licence trajectory, which remains the key ingredient in the company's recipe for success over the coming years," FBR Capital Markets analyst Daniel Ives told Reuters.
Licence revenue rose 15% in the quarter ended 30 September, VMware said on Monday.
VMware shares rose 9% in extended trading, while those of parent EMC rose 5%, even though VMware lowered the upper end of its full-year revenue forecast range to $5.21 billion from $5.26 billion. Analysts on average were expecting revenue of $5.20 billion, according to Thomson Reuters I/B/E/S.
VMware sells virtualisation software, which enables the creation of a virtual machine that acts like a real computer with an operating system. This helps companies use server and storage space more efficiently and reduce IT costs.
The company's vCloud Suite of products, introduced in 2012, allows companies to build a complete cloud infrastructure.
"The strength in the quarter was licences. They had a very good licence quarter and that's kind of front and centre for investors," Ives said. "It seems the company is poised to see a nice reacceleration in licence revenue heading into 2014."
VMware said it signed its largest-ever enterprise licence deal with the US Army in the third quarter.
The company, which gets 10% to 15% of its revenue from the US government, said it expected government-related revenue to be flat in the current quarter, which included a two-week government shutdown.
VMware raised the high end of its full-year revenue forecast range in July, saying government demand and enterprise deals were likely to pick up in the second half.
Over the last year, VMware has been renewing its enterprise licensing contracts at a higher rate and adding more enterprise customers, Mizuho Securities USA analyst Abhey Lamba wrote in a pre-earnings note.
Long-term licence agreements including maintenance and support make up a quarter to a third of VMware's sales.
VMware said third-quarter net income rose to $261 million, or 60 cents per share, from $157 million, or 36 cents per share, a year earlier.
Excluding items, the company earned 84 cents per share.
Total revenue rose 14% to $1.29 billion.
Analysts on average had expected earnings of 82 cents per share on revenue of $1.29 billion, according to Thomson Reuters I/B/E/S.
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