NetApp: What’s Next After Q1 Earnings Beat?

NetApp (NTAP) reported mixed Q1 results, with earnings beating estimates but revenue falling short. The company’s hybrid cloud segment saw revenue decline, while its public cloud segment grew. NetApp’s outlook for the fiscal year is for revenue to decline in the mid-to-low single-digit range.

NetApp: What’s Next After Q1 Earnings Beat?

Netapp (NTAP) recently released its earnings report, and investors are eager to know what’s next for the stock. In this article, we’ll take a closer look at the company’s recent earnings report and what it could mean for the stock in the near future.

Netapp reported first-quarter fiscal non-GAAP earnings per share that surpassed Zacks Consensus Estimate per share. However, the bottom line decreased year-over-year. Management anticipated non-GAAP earnings ranging from $1.01 billion to $1.07 billion, reflecting a decline year-over-year. NTAP projected revenue between $1.49 billion and $1.55 billion, indicating weak spending due to a tough macro environment affecting performance. Despite the revenue beat, Netapp continues to expect fiscal revenue to dip in the mid-to-low single-digit range year-over-year basis.

Netapp’s hybrid cloud segment revenue grew year-over-year to $1.08 billion, while the public cloud segment’s revenue declined to $394 million compared to the year-ago quarter level. Within the hybrid cloud segment, product revenue fell year-over-year to $842 million, while revenue from support contracts totaled $202 million, gaining year-over-year. Professional services revenue declined to $37 million and software product revenue amounted to $2 million, dipping year-over-year.

On a regional basis, Americas, Europe, the Middle East, Africa, and Asia Pacific contributed 52%, 26%, 13%, and 9% to total revenue, respectively. In terms of direct and indirect revenue, direct revenue accounted for 77% of total revenue.

Netapp’s non-GAAP gross margin expanded by 10 basis points (bps) from prior-year quarter levels. The hybrid segment gross margin expanded by 20 bps year-over-year, while the public cloud segment witnessed a gross margin contraction of 10 bps year-over-year. Non-GAAP operating expenses increased to $731 million compared to $679 million in the prior-year quarter. As a percentage of net revenue, the figure came in 10 bps higher year-over-year basis. Non-GAAP operating income declined year-over-year to $368 million, and the non-GAAP operating margin shrank by 20 bps.

Looking ahead, management projects non-GAAP earnings per share in the range of $1.03 to $1.13 billion and net revenue between $1.53 billion and $1.61 billion. In the past month, investor sentiment has shown an upward trend, with fresh estimates indicating a positive outlook. Netapp’s Zacks Rank is currently “Hold,” suggesting an in-line return on the stock over the next month.