NetApp, a company specializing in on-premises data storage systems and public cloud services, is gearing up to announce its Q3 FY’24 results later this month. Analysts anticipate the company's revenues for the quarter to reach around $1.6 billion, slightly surpassing expectations and showing a 4% increase from the previous year. Earnings are projected to be approximately $1.69 per share, aligning with consensus estimates.
NetApp's Hybrid Cloud business has faced challenges recently due to reduced IT spending and cost-cutting measures by large corporations. In Q2 FY’24, the company experienced a 6% year-over-year decline in revenue, dropping to $1.56 billion from $1.66 billion in FY’23, with adjusted earnings remaining relatively stable. The Hybrid Cloud segment saw a decrease in revenue to $1.41 billion compared to $1.52 billion in the same period last fiscal year. However, there is optimism that this trend may reverse slightly in Q3’FY’24, with the public cloud business expected to continue its growth trajectory.
NetApp has also made strides in improving its margins, reporting record adjusted consolidated gross margins of 72% in Q2. Despite fluctuations in its stock performance, with a 30% increase from early 2021 to the current level of around $85, NetApp has shown resilience. The company's stock returns were 39% in 2021, -35% in 2022, and 47% in 2023, indicating a volatile pattern compared to the S&P 500.
Looking ahead, uncertainties in the macroeconomic environment, such as high oil prices and elevated interest rates, raise questions about NetApp's future performance relative to the S&P 500. However, the company's cost-cutting measures and focus on profitability, including layoffs of about 8% of its workforce, suggest a proactive approach to navigate challenges.
NetApp's strengths in the hybrid cloud and traditional storage sectors, particularly in all-flash arrays, position it well for future growth, especially with the expanding role of technologies like artificial intelligence. With a valuation trading at just over 14x consensus FY’24 earnings, NetApp appears attractively priced. While the current price estimate for NTAP stock hovers around $88, a reassessment will follow the Q3 results.
Despite prevailing headwinds, NetApp remains a compelling investment opportunity, supported by its strategic initiatives, market positioning, and valuation metrics. Investors will be closely watching the upcoming earnings report to gauge the company's performance and outlook in the evolving technology landscape.
