NetApp (NASDAQ:NTAP) Emerges From Economic Disaster With Brand New Focus

There is a school of thought in investing that says big job cuts at businesses are often rewarded by stockholders who recognize the boldness of such a move and consider it an excellent way to improve a company's future fortunes. Less salary payout, after all, means cash saved. That seems to be what happened at NetApp (NASDAQ:NTAP) recently, as despite the top-notch quarter the company just turned in, it's staging massive layoffs nonetheless.

The Numbers Proved Better Than Expected

NetApp's first fiscal quarter of 2021 turned out to be an utter winner. The company turned in net income of $77 million—roughly $0.35 per share—on the back of sales coming in at $1.3 billion. That's a big number in isolation, but when you consider that the same time a year prior featured sales of $1.24 billion, it's a solid gain produced in the midst of one of the worst economic periods in world history, which makes it equivalent to huge gains produced in normal conditions.

Better yet, though, it not only made the gains and improved on last year's figures, but it also beat estimates, and gravely, too. Analysts expected adjusted earnings per share of $0.41, but instead were treated to nearly double that at $0.73. Analysts also expected sales of $1.15 billion, and we know how that one turned out.

Conditions Favored the Company As Well

We also know there were “coronavirus winners” to be had in the midst of this horror, and NetApp seems to have been one of them. Some retail stocks, like Target (NYSE:TGT) and Walmart (NYSE:WMT) pulled out magnificent wins from this economic calamity as more people stayed home, yet still needed—and wanted—to shop.

Another set of winners came from businesses like Zoom (NASDAQ:ZM), who provided the tools necessary to a work from home lifestyle. With work from home, businesses could actually stay open and producing on at least some level, and those who offered the necessary tools reaped the benefits of businesses clamoring for said product. NetApp's product line proved quite helpful on that front, according to word from NetApp's CEO George Kurian.

No Gains Without Sacrifice

Yet there is a sadder side to these impressive gains; as previously mentioned, big job cuts recently hit NetApp where it lived. The company had a workforce of around 11,000 people, but with recent job cuts, it's lost about 5.5% of that workforce.

The biggest hits came from engineers and developers recently joining the company following its 2015 acquisition of SolidFire, a vendor which focused on all-flash systems. In what may be a more distressing move, big cuts were also seen in the company's marketing departments.

Under normal circumstances, cutting marketing is a desperation move, the kind only undertaken by companies well down into a death spiral. It's not a move commonly seen by companies who turn in better-than-expected earnings reports in the midst of economic catastrophe. However, a recent statement from NetApp offered a surprisingly reasonable rationale behind the cuts, stating that it was planning to focus harder on markets in which the company already has a substantial presence and a clear competitive advantage, like storage systems and cloud data services.

That point right there may have kept the company from leading itself into its own doom. When your marketing plan is to preach to the choir and do it relentlessly, you don't need a whole lot of evangelists spreading the word about the product.

NetApp seems to be focusing on its own market niche, where it's made that name for itself already and is planning to put that name to use. Marketing outreach functions are largely unnecessary here, and the whole function can be reduced to reminder marketing and occasional new product announcements. Locking customers into recurring charges by providing services certainly doesn't hurt either; just ask Apple (NASDAQ:AAPL) about how valuable services can be.

It's never easy to hear about big layoffs, but NetApp may have just found the best possible way to do it. By shifting its marketing focus and removing a lot of the resulting unnecessary marketing functions, it's become much more focused. As long as it can deliver new products and upgraded products at such a speed as to make its current market continually profitable, the company should be able to keep its big numbers going for some time to come.