NetApp Surges Past Earnings Expectations in Q2 FY2025

NetApp, Inc. NTAP has announced impressive second-quarter fiscal 2025 results, reporting non-GAAP earnings of $1.87 per share. This figure exceeded the Zacks Consensus Estimate by 4.5% and marked an 18.4% increase from last year’s earnings. Additionally, it surpassed the company’s own forecast of $1.73-$1.83.

Stay informed on quarterly performance: View the Zacks Earnings Calendar.

The company’s revenues reached $1.66 billion, reflecting a 6% increase year over year and falling within its guidance range of $1.565-$1.715 billion. Strong performances in the Hybrid Cloud and Public Cloud segments drove this growth, particularly a notable 19% increase in all-flash storage sales and robust growth in first-party and marketplace cloud storage services. Revenues also surpassed the consensus estimate by 0.8%.

Management Optimism Fuels Increased Revenue Forecast

In light of continued success in flash storage, AI, and cloud solutions, management has raised its outlook for fiscal 2025. The anticipated full-year revenues now range between $6.54-$6.74 billion, reflecting a 6% year-over-year growth at the midpoint. Previously, the estimate was between $6.48-$6.68 billion.

The new forecast for non-GAAP earnings per share is set between $7.20 and $7.40, which represents a 13% year-over-year increase at the midpoint. Earlier expectations were for earnings between $7.00 and $7.20 per share. Furthermore, the company continues to estimate a non-GAAP gross margin between 71-72% and an operating margin of 28-28.5%, consistent with prior projections.

Image Source: Zacks Investment Research

Following the earnings announcement, NTAP shares rose 4.6% in pre-market trading. Over the past year, the company’s stock has appreciated by 62.4%, significantly outperforming the sub-industry’s growth of 23.6%.

Revenue Breakdown: Hybrid and Public Cloud Segments

NetApp categorizes its revenues into two primary segments: Hybrid Cloud and Public Cloud.

The Hybrid Cloud segment encompasses revenues from enterprise data centers, including product sales, support, and professional services.

The Public Cloud segment consists of revenues generated from products offered as a service, alongside related support services, including cloud automation, optimization services, and infrastructure monitoring.

In this quarter, Hybrid Cloud revenues grew by 6% year over year to reach $1.49 billion, while Public Cloud revenues rose by 9% to $168 million. NTAP anticipates that cloud revenues will return to double-digit growth year over year starting this quarter.

Prior projections for fiscal second-quarter revenues were $1,484 million for Hybrid Cloud and $159 million for Public Cloud.

Profitability Metrics Show Positive Trends

For the second quarter, NTAP’s All-Flash Array business boasted an annualized net revenue run rate of $3.8 billion, marking a 19% increase from the previous year. Total billings for the quarter increased by 9% year over year to reach $1.59 billion. Deferred revenues stood at $4.1 billion, with remaining performance obligations (RPO) at $4.4 billion and unbilled RPO at $330 million. Revenues from the Keystone storage-as-a-service solution spiked 55% year over year.

Operating Insights

NTAP reported a non-GAAP gross margin of 72%, steady from the same period last year. Within the Hybrid Cloud segment, product revenues (which account for 51.5% of total segment revenues) rose by 9% year over year to reach $768 million. Support contract revenues totaled $635 million, a 2% increase from the previous year, while revenues from professional and other services amounted to $87 million, reflecting a 10% year-over-year rise.

Regionally, the Americas accounted for 52% of total revenues, while EMEA contributed 33% and Asia Pacific made up the remaining 15%. Direct revenues represented 23% of total revenues, with indirect sales comprising 77%.

Financial Standing & Cash Flow Analysis

At the end of the quarter on October 25, 2024, NetApp held $2.22 billion in cash, cash equivalents, and investments, down from $3.02 billion as of July 26. Long-term debt remained stable at $1.244 billion.

Net cash provided by operations totaled $105 million, down from $135 million in the same period last year. Free cash flow decreased to $60 million, resulting in a free cash flow margin of 3.6%, compared to 6.2% in the previous quarter. The decline is attributed to upfront payments for strategic SSD purchases expected to benefit operations in fiscal 2025.

During the second quarter, NetApp returned $406 million to its shareholders through dividends and share repurchases, with $800 million of shares still available for repurchase. The company announced a dividend payout of 52 cents per share, set to be paid on January 22, 2025, to shareholders recorded by January 3.

Future Expectations: Q3 Guidance

Looking ahead, management anticipates non-GAAP earnings per share to fall between $1.85 and $1.95, exceeding the Zacks Consensus Estimate of $1.79 per share. Projected net revenues are expected to range from $1.61 billion to $1.76 billion, lining up with the Zacks consensus of $1.65 billion.

Current Market Position

NetApp currently holds a Zacks Rank #2 (Buy), indicating a favorable outlook for investors.

Recent Performance of Tech Competitors

Seagate Technology Holdings plc STX reported first-quarter fiscal 2025 non-GAAP earnings of $1.58 per share, outperforming the Zacks Consensus Estimate by 6.8% and marking a turnaround from a non-GAAP loss of 22 cents per share in the previous year’s quarter. This growth was largely due to a favorable shift towards mass-capacity products. Their non-GAAP revenues totaled $2.168 billion, exceeding estimates by 2.4% and showing a 49% year-over-year increase, leading to a 30.5% rise in shares over the past year.

Badger Meter, Inc. BMI achieved EPS of $1.08 in its third quarter of 2024, beating estimates by 5.9%. Quarterly sales increased to $208.4 million, representing a 12% rise from $186.2 million last year, driven by strong demand for water management solutions. Their stock has seen a 47.3% increase over the past year.

Iridium Communications IRDM reported an EPS of 21 cents for Q3 2024, exceeding estimates by 5%. This marked a significant improvement from a loss of one cent per share a year ago. Revenues reached $212.8 million, an 8% increase, outperforming expectations of $205.7 million, although shares have dipped 23.7% over the past year.

Investment Opportunities to Watch

Five stocks selected by Zacks experts are predicted to potentially double in value. While not all selections can guarantee success, previous picks have shown extraordinary returns of +143.0%, +175.9%, +498.3%, and +673.0%.

These select stocks provide a promising opportunity for investors looking for significant growth. Explore these five potential home run stocks >>

For the latest stock recommendations from Zacks Investment Research, you can download the report on the five stocks poised to double in value.

Badger Meter, Inc. (BMI): Free Stock Analysis Report

NetApp, Inc. (NTAP): Free Stock Analysis Report

Seagate Technology Holdings PLC (STX): Free Stock Analysis Report

Iridium Communications Inc (IRDM): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.