To The Moon

$NetApp(NTAP)$ is scheduled to release its fiscal Q4 2025 earnings on 29 May 2025, after the closing bell. The company will also host a conference call at 2:30 PM PDT on the same day.

Revenue: NetApp expects net revenues to be in the range of $1.65 billion to $1.80 billion. The Zacks Consensus Estimate is pegged at $1.73 billion, implying a 3.4% increase from the prior-year level.

Product Revenue: Analysts project product revenue to be around $831.32 million, indicating a 3.1% increase year-over-year.

Services Revenue: Services revenue is estimated to reach $893.66 million, up 3.7% from the year-ago quarter.

Earnings Per Share (EPS): NetApp expects non-GAAP EPS to be between $1.84 and $1.94. The Zacks Consensus Estimate is $1.89 per share, representing a 5% rise from the year-ago level.

Gross Margins

Non-GAAP Product Gross Margin is projected to be around 56.2%, down from 61.3% in the same quarter last year. This potential decline could be a point of concern.

Non-GAAP Services Gross Margin is expected to reach 82.0%, compared to 81% in the prior year.

Segmental Revenue Estimates

Hybrid Cloud: Expected to reach $1.56 billion, a 2.6% increase year-over-year.

Public Cloud: Forecasted to hit $169.80 million, indicating an 11.7% increase year-over-year. (Note: The recent divestiture of Spot is expected to reduce cloud revenues by about $15 million, with minimal effect on the bottom line).

NetApp (NTAP) Last Neutral Earnings Call Saw Significant Decline Of 16.57% For Share Price

NetApp had a neutral earnings call on 27 Feb 2025 which saw a significant decline of its share price by 16.57%.

The earnings call presented both positive achievements and challenges. While there was strong growth in specific segments like all-flash arrays and public cloud, and improvements in operating and public cloud gross margins, there were notable execution challenges and unfavorable currency impacts. The company's guidance adjustments and sector-specific weaknesses also added caution. However, the company's strategic positioning and product strength provide a balanced outlook.

NetApp (NTAP) Guidance

During the NetApp third quarter fiscal year 2025 earnings call, the company provided guidance adjusting its outlook for the fourth quarter and full fiscal year 2025, citing the recent divestiture of Spot by NetApp, the impact of a stronger U.S. dollar, and underperformance in Q3 revenue. The company now expects fiscal year 2025 revenue to range between $6.49 and $6.64 billion, representing approximately 5% year-over-year growth at the midpoint, with consolidated gross margin around 71% and operating margin between 28% and 28.5%.

The earnings per share (EPS) forecast for the year is between $7.17 and $7.27, reflecting 12% growth at the midpoint. For the fourth quarter, revenue is projected to be between $1.65 and $1.80 billion, with an EPS range of $1.84 to $1.94. Despite Q3 challenges, the company remains focused on enhancing sales execution and controlling expenses, while maintaining a strong market position in AI and cloud solutions, with the anticipation of continued growth in these areas.

Key Factors and Trends to Watch

Achieved an operating margin of 30%, above expectations, indicating disciplined management of the business.

All-Flash Array (AFA) Momentum: Healthy demand for NetApp's portfolio of modern all-flash arrays, especially the C-series capacity flash and ASA block-optimized flash, is expected to have aided the top line. The new all-flash A-series is also gaining traction, as these enterprise storage solutions help accelerate workloads like traditional business applications and Gen AI.

All-flash array business grew 10% year-over-year, reaching an annualized revenue run rate of $3.8 billion.

Public Cloud Growth (with Spot Divestiture Impact): Steady growth in hyperscaler first-party and marketplace storage services has been fueling NetApp's Public Cloud revenues. In the last reported quarter (Q3 FY25), Public Cloud segment revenues improved 15% year-over-year, driven by a 40% increase in first-party and marketplace cloud storage services. Investors will look at the growth in these core cloud storage services, while factoring in the impact of the Spot divestiture on the overall Public Cloud segment revenue.

Public Cloud segment revenue grew 15% year-over-year, with first-party and marketplace cloud storage services growing by over 40%. Public cloud gross margins improved to 76%, up from 66% in the prior year, marking a 1,000 basis point improvement.

Keystone (Storage-as-a-Service): The Keystone storage-as-a-service offering has been strengthening, with revenues increasing nearly 60% year-over-year in the last reported quarter. Continued strong performance in Keystone would be a positive indicator.

Keystone, the Storage as a Service offering, saw revenue growth of nearly 60% year-over-year. Named a customer's choice for primary storage in Gartner's 2025 Voice of the Customer report.

Sales Execution and Macroeconomic Headwinds: In Q3 FY25, NetApp noted challenges with sales execution and delays in closing large deals. While some of these deals were expected to close in Q4, the company has faced a cautious IT spending environment, particularly in Europe (France and Germany) and the U.S. public sector, and ongoing cloud cost optimization efforts by clients. Any commentary on improved sales execution and the impact of the macroeconomic environment will be crucial.

Inconsistent execution resulted in some deals slipping out of Q3, impacting top-line performance.

Cost-Cutting and Strategic Pricing: NetApp has been implementing cost-cutting measures and strategic pricing, which are expected to have acted as key catalysts for profitability. The company also recently announced a strategic organizational realignment and layoffs to better position itself for long-term growth and operational efficiency.

The stronger U.S. dollar negatively impacted revenue and EPS, with an expected impact of approximately $30 million less in reported revenue. Support revenue declined 2% year-over-year, though it was roughly flat in constant currency.

AI Opportunities: NetApp is actively positioning itself in the AI infrastructure space, working with partners like NVIDIA. Commentary on how AI demand is translating into new business for NetApp's data storage and management solutions will be important.

Guidance for FY 2025 was slightly decreased due to the divestiture of Spot by NetApp and FX headwinds. Expected global public sector weakness, particularly in the U.S., has tempered growth expectations.

NetApp (NTAP) Price Target

Based on 15 analysts from Tiger Brokers offering 12 month price targets for NetApp in the last 3 months. The average price target is $117.49 with a high forecast of $150.00 and a low forecast of $100.00. The average price target represents a 19.89% change from the last price of $98.00.

The Zacks Consensus Estimate for EPS of $1.89 indicates a 5% year-over-year increase, and for revenue of $1.73 billion suggests a 3.4% increase.

Technical Analysis - Exponential Moving Average (EMA)

NetApp has a mixed record of beating earnings estimates, having surpassed expectations in two of the trailing four quarters while matching the rest. Currently, the Zacks Earnings ESP for NTAP is 0.00% with a Zacks Rank #4 (Sell), suggesting that the model does not predict an earnings beat this time around.

If we looked at how the RSI momentum have basically stalled, as NTAP trading sideway, so we might see a decline and NTAP losing the 50-day period level if the earnings did not surpassed expectations.

Summary

I think investors will be looking for strong performance in core storage solutions (especially all-flash arrays), continued growth in cloud services, and positive commentary on sales execution and the overall demand environment, particularly regarding the uptake of AI-related storage solutions. The impact of recent cost-cutting measures and the Spot divestiture on profitability will also be closely watched.

Appreciate if you could share your thoughts in the comment section whether you think NTAP could provide an earnings surprise if their cost-cutting measures yield good result.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.