Why Is NetApp (NTAP) Up 0.5% Since Last Earnings Report?
It has been about a month since the last earnings report for NetApp (NTAP). Shares have added about 0.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is NetApp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
NetApp Q1 Earnings Top Estimates
NetApp reported first-quarter fiscal 2024 non-GAAP earnings of $1.15 per share, which surpassed the Zacks Consensus Estimate of $1.07 per share. Yet, the bottom line decreased 4.2% year over year. Management anticipated non-GAAP earnings in the range of $1.00-$1.10.
Revenues of $1.432 billion declined 10% year over year. NTAP projected revenues in the $1.325-$1.475 billion band. Weak IT spending due to tough macro environment affected performance.
However, revenues beat the consensus mark by 1.5%.
NetApp continues to expect fiscal 2024 revenues to dip in the mid-to-low single-digit range on a year-over-year basis. However, management now suggests Public Cloud revenue growth to be lower than the earlier expectation owing to a softness in subscription services.
The company forecasts non-GAAP earnings per share for fiscal 2024 to be between $5.65 and $5.85.
For fiscal 2024, NetApp expects non-GAAP gross margin to be nearly 70%. Non-GAAP operating margin is estimated to be nearly 25%.
Top-Line Details
NTAP reports revenues under two segments, namely, Hybrid Cloud and Public Cloud.
The Hybrid Cloud segment consists of revenues from enterprise datacenter business including product, support and professional services.
The Public Cloud segment comprises revenues from products, which are delivered as-a-service and entail related support. The portfolio contains cloud automation and optimization services, and storage services and cloud infrastructure monitoring services.
Revenues from the Hybrid Cloud segment were down 12% year over year to $1.278 billion. The Public Cloud segment’s revenues were up 17% from the year-ago quarter’s levels to $154 million.
Within the Hybrid Cloud segment, Product revenues (46% of segmental revenues) tumbled 25% year over year to $590 million.
Revenues from Support Contracts (48%) totaled $611 million, gaining 2.2% year over year. Professional and Other Services revenues (6%) were $77 million, rose 1.3% year over year.
Software product revenues amounted to $342 million, dipping 28.2%.
Region-wise, the Americas, Europe, Middle East and Africa, and Asia Pacific contributed 53%, 31% and 16% to total revenues, respectively.
Direct and Indirect revenues added 24% and 76%, respectively, to total revenues.
Key Metrics
During the fiscal first quarter, the company’s All-Flash Array Business’ annualized net revenue run rate of $2.8 billion fell 7% year over year. Total billings decreased 17% year over year to $1.3 billion. Deferred revenues were $4.2 billion, unchanged on a year-over-year basis.
Public Cloud Services recorded annualized recurring revenues of $619 million, up 6% year over year.
Operating Details
Non-GAAP gross margin of 70.7% expanded 400 basis points (bps) from the prior-year quarter’s levels.
The Hybrid segment’s gross margin was 71.1%, which extended 470 bps year over year. The Public Cloud segment witnessed gross margin of 66.9%, contracting 280 bps year over year.
Non-GAAP operating expenses were $703 million compared with $702 million in the prior-year quarter. As a percentage of net revenues, the figure came in at 49.1%, up 500 bps on a year-over-year basis.
Non-GAAP operating income declined 14.2% year over year to $309 million. Non-GAAP operating margin shrank 100 bps to 21.6%.
Balance Sheet & Cash Flow
NetApp exited the quarter ending Jul 28, 2023, with $2.975 billion in cash, cash equivalents and investments compared with $3.07 billion as of Apr 28. Long-term debt was $2.390 billion compared with $2.389 billion as of Apr 28.
Net cash from operations was $453 million compared with $235 million in the previous quarter.
Free cash flow was $418 million (free cash flow margin of 29.2%) compared with $196 million in the prior quarter (12.4%).
The company returned $506 million to shareholders as dividend payouts and share repurchases in the fiscal first quarter. It has $1 billion worth of shares remaining under its existing authorization.
Q2 2024 Guidance
Management projects non-GAAP earnings per share to be between $1.35 and $1.45. Net revenues are anticipated in the range of $1.455-$1.605 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, NetApp has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, NetApp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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NetApp, Inc. (NTAP) : Free Stock Analysis Report
