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Why Is NetApp (NTAP) Down 1.1% Since Last Earnings Report?
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A month has gone by since the last earnings report for NetApp (NTAP - Free Report) . Shares have lost about 1.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is NetApp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
NetApp Q2 Earnings Beat Estimates
NetApp reported second-quarter fiscal 2024 non-GAAP earnings of $1.58 per share, which surpassed the Zacks Consensus Estimate by 12.9% and increased 7% year over year. Management anticipated non-GAAP earnings in the range of $1.35-$1.45.
Revenues of $1.562 billion decreased 6% (down 8% at constant currency basis) year over year. NetApp projected revenues in the $1.455-$1.605 billion band. Weak IT spending due to tough macro environment remains an overhang.
However, revenues beat the consensus mark by 2.1%.
NetApp now expects fiscal 2024 revenues to inch down 2% year over year compared with the earlier projection of a decline in mid-to-low single-digit range on a year-over-year basis. Despite soft macroeconomic conditions, management expects strength in product, and hyper-scaler first-party and marketplace services to drive revenues. Weakness in public cloud subscription services is likely to remain a headwind in the near term.
The company now forecasts fiscal 2024 non-GAAP earnings per share (EPS) to be between $6.05 and $6.25 (previous prediction: $5.65 and $5.85). The Zacks Consensus Estimate is pegged at $5.73.
For fiscal 2024, NetApp expects non-GAAP gross margin to be nearly 71% compared with 70% expected earlier. Non-GAAP operating margin is projected to be nearly 26% compared with 25% expected earlier.
Top-Line Details
NetApp reports revenues under two segments, namely, Hybrid Cloud and Public Cloud.
The Hybrid Cloud segment consists of revenues from the 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. Storage and cloud infrastructure monitoring services are also included.
Revenues from the Hybrid Cloud segment were down 7% year over year to $1.408 billion. The Public Cloud segment’s revenues were up 8% from the year-ago quarter’s levels to $154 million.
We projected revenues from the Hybrid Cloud and Public Cloud segments’ for the fiscal second quarter to be $1372.4 million and $156.9 million, respectively.
Within the Hybrid Cloud segment, Product revenues (50% of segmental revenues) plunged 16% year over year to $706 million.
Revenues from Support Contracts (44%) totaled $623 million, gaining 2.6% year over year. Professional and Other Services revenues (6%) were $79 million, which rose 2.6% year over year.
Software product revenues amounted to $398 million, dipping 19.6%.
Region-wise, the Americas, Europe, Middle East and Africa, and Asia Pacific contributed 50%, 34% and 16% to total revenues, respectively.
Direct and Indirect revenues added 23% and 77%, respectively, to total revenues.
Key Metrics
During the fiscal second quarter, the company’s All-Flash Array Business’ annualized net revenue run rate of $3.2 billion inched up 1% year over year. Total billings fell 9% year over year to $1.5 billion. Deferred revenues were $4 billion, down 1% on a year-over-year basis.
Public Cloud Services recorded annualized recurring revenues of $609 million, up 1% year over year.
Operating Details
Non-GAAP gross margin of 72% expanded 570 basis points (bps) from the prior-year levels.
The Hybrid Cloud segment’s gross margin was 72.7%, which extended 660 bps year over year. The Public Cloud segment witnessed gross margin of 66.2%, contracting 210 bps year over year.
Non-GAAP operating expenses were $706 million compared with $709 million in the previous-year quarter. As a percentage of net revenues, the figure was 45.2%, up 260 bps on a year-over-year basis.
Non-GAAP operating income increased 6.6% year over year to $419 million. Non-GAAP operating margin expanded 320 bps to 26.8%.
Balance Sheet & Cash Flow
NetApp exited the quarter ending Oct 27, 2023, with $2.620 billion in cash, cash equivalents and investments compared with $2.975 billion as of Jul 28. Long-term debt was $1.991 billion compared with $2.390 billion as of Jul 28.
Net cash from operations was $135 million compared with $453 million in the previous quarter.
Free cash flow was $97 million (free cash flow margin of 6.2%) compared with $418 million in the prior quarter (29.2%).
The company returned $403 million to shareholders as dividend payouts and share repurchases in the fiscal second quarter.
Q3 2024 Guidance
Management projects non-GAAP EPS to be between $1.64 and $1.74.
Net revenues are anticipated in the range of $1.51-$1.67 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 11.16% due to these changes.
VGM Scores
Currently, NetApp has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 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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Why Is NetApp (NTAP) Down 1.1% Since Last Earnings Report?
A month has gone by since the last earnings report for NetApp (NTAP - Free Report) . Shares have lost about 1.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is NetApp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
NetApp Q2 Earnings Beat Estimates
NetApp reported second-quarter fiscal 2024 non-GAAP earnings of $1.58 per share, which surpassed the Zacks Consensus Estimate by 12.9% and increased 7% year over year. Management anticipated non-GAAP earnings in the range of $1.35-$1.45.
Revenues of $1.562 billion decreased 6% (down 8% at constant currency basis) year over year. NetApp projected revenues in the $1.455-$1.605 billion band. Weak IT spending due to tough macro environment remains an overhang.
However, revenues beat the consensus mark by 2.1%.
NetApp now expects fiscal 2024 revenues to inch down 2% year over year compared with the earlier projection of a decline in mid-to-low single-digit range on a year-over-year basis. Despite soft macroeconomic conditions, management expects strength in product, and hyper-scaler first-party and marketplace services to drive revenues. Weakness in public cloud subscription services is likely to remain a headwind in the near term.
The company now forecasts fiscal 2024 non-GAAP earnings per share (EPS) to be between $6.05 and $6.25 (previous prediction: $5.65 and $5.85). The Zacks Consensus Estimate is pegged at $5.73.
For fiscal 2024, NetApp expects non-GAAP gross margin to be nearly 71% compared with 70% expected earlier. Non-GAAP operating margin is projected to be nearly 26% compared with 25% expected earlier.
Top-Line Details
NetApp reports revenues under two segments, namely, Hybrid Cloud and Public Cloud.
The Hybrid Cloud segment consists of revenues from the 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. Storage and cloud infrastructure monitoring services are also included.
Revenues from the Hybrid Cloud segment were down 7% year over year to $1.408 billion. The Public Cloud segment’s revenues were up 8% from the year-ago quarter’s levels to $154 million.
We projected revenues from the Hybrid Cloud and Public Cloud segments’ for the fiscal second quarter to be $1372.4 million and $156.9 million, respectively.
Within the Hybrid Cloud segment, Product revenues (50% of segmental revenues) plunged 16% year over year to $706 million.
Revenues from Support Contracts (44%) totaled $623 million, gaining 2.6% year over year. Professional and Other Services revenues (6%) were $79 million, which rose 2.6% year over year.
Software product revenues amounted to $398 million, dipping 19.6%.
Region-wise, the Americas, Europe, Middle East and Africa, and Asia Pacific contributed 50%, 34% and 16% to total revenues, respectively.
Direct and Indirect revenues added 23% and 77%, respectively, to total revenues.
Key Metrics
During the fiscal second quarter, the company’s All-Flash Array Business’ annualized net revenue run rate of $3.2 billion inched up 1% year over year. Total billings fell 9% year over year to $1.5 billion. Deferred revenues were $4 billion, down 1% on a year-over-year basis.
Public Cloud Services recorded annualized recurring revenues of $609 million, up 1% year over year.
Operating Details
Non-GAAP gross margin of 72% expanded 570 basis points (bps) from the prior-year levels.
The Hybrid Cloud segment’s gross margin was 72.7%, which extended 660 bps year over year. The Public Cloud segment witnessed gross margin of 66.2%, contracting 210 bps year over year.
Non-GAAP operating expenses were $706 million compared with $709 million in the previous-year quarter. As a percentage of net revenues, the figure was 45.2%, up 260 bps on a year-over-year basis.
Non-GAAP operating income increased 6.6% year over year to $419 million. Non-GAAP operating margin expanded 320 bps to 26.8%.
Balance Sheet & Cash Flow
NetApp exited the quarter ending Oct 27, 2023, with $2.620 billion in cash, cash equivalents and investments compared with $2.975 billion as of Jul 28. Long-term debt was $1.991 billion compared with $2.390 billion as of Jul 28.
Net cash from operations was $135 million compared with $453 million in the previous quarter.
Free cash flow was $97 million (free cash flow margin of 6.2%) compared with $418 million in the prior quarter (29.2%).
The company returned $403 million to shareholders as dividend payouts and share repurchases in the fiscal second quarter.
Q3 2024 Guidance
Management projects non-GAAP EPS to be between $1.64 and $1.74.
Net revenues are anticipated in the range of $1.51-$1.67 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 11.16% due to these changes.
VGM Scores
Currently, NetApp has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 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.