NetApp Still a Value Play in the Data Management Segment

Key Points

• Artificial intelligence (AI) tailwinds are boosting NetApp's all-flash array (AFA) business, with margins expanding from low NAND pricing.
• Low flash memory pricing is driving the all-flash array business, displacing HDD in AI applications.
• NetApp posted a blowout fiscal Q3 2024, beating consensus estimates by 25 cents and raising its full-year guidance.

NetApp Inc. NASDAQ: NTAP is a data management company that enables companies to store, share and manage data on-premises and on the cloud. The Computer and Technology sector company specializes in hybrid cloud data storage, operating in 2 segments, including Public Cloud and Hybrid Cloud. Its all-flash array and data-centric solutions are used by hyperscaler giants like Amazon.com Inc. NASDAQ: AMZN, Microsoft Co. NASDAQ: MSFT and Alphabet Inc. NASDAQ: GOOGL.

NetApp credit artificial intelligence (AI) tailwinds enable its best operating margins in a favorable NAND pricing environment. It drove dozens of customer wins, including many large Nvidia Co. NASDAQ: NVDA SuperPOD and BasePOD deployments. NetApp shares trade at 20X forward earnings and 13X forward non-GAAP EPS compared to top competitor Pure Storage Inc. NYSE: PSTG at 128.72X.

Data Fabric Architecture Drives Competitive Advantage

Data fabric refers to a machine-enabled smart system that brings together different kinds of data from various places, utilizing metadata to organize, join, and control the data from different sources. Data fabric keeps data safe and accessible, enabling smooth connections between different data pipelines on-premises, cloud or devices.

It standardizes data management practices and processes, enhancing data security so customers can create end-to-end data pipelines. This enables smooth and efficient data flow between data sources and data consumers. Check out the sector heatmap on MarketBeat.

NetApp Knocks the Ball Out of the Park

On February 29, 2024, NetApp reported fiscal third-quarter 2024 EPS of $1.94, beating consensus analyst estimates for $1.69 by 25 cents. Revenues grew 5.2% YoY to $1.61 billion, beating the $1.59 billion consensus estimates. Billings rose 7% YoY to $1.69 billion, up from $1.57 billion in the year-ago period. All-flash array annualized revenue run-rate (ARR) grew 21% YoY to $3.4 billion. Consolidation Q3 GAAP gross margins were 72%. Q3 GAAP operating margins were 23%, and non-GAAP operating margins hit a record 30%. The company closed the quarter with $2.92 billion in cash and cash equivalents.

Both Cloud Segments Show Revenue Growth 

Its Hybrid Cloud segment recorded $1.46 billion in revenues, up from $1.38 billion in the year ago period. Its Public Cloud segment generated $151 million, up from $151 million in fiscal Q3 2023. Public Cloud ARR was $608 million versus $605 million in fiscal Q3 2023.

NetApp Provides In-Line Guidance

NetApp provided upbeat fiscal Q4 2024 EPS of $1.73 to $1.83 versus $1.73 consensus analyst estimates. Revenues are expected to be between $1.585 billion and $1.735 billion versus the consensus estimates of $1.65 billion. Fiscal full-year 2024 EPS is expected to be between $6.40 and $6.50 versus $6.14 consensus estimates. Full-year 2024 revenues are expected to be between $6.185 billion and $6.335 billion versus the consensus estimates of $6.23 billion. The next cash dividend of 50 cents per share will be paid on April 24, 2024, to shareholders of record at the close of business on April 5, 2024.

CEO Insights

NetApp CEO George Kurian pointed out that its all-flash business grew to 60% of the Hybrid Cloud segment revenue and that it expects a sustainable step up in its baseline product gross margin moving forward. Kurian pointed out that only NetApp delivers a comprehensive architecture anchored on a single silo-free operating system that can support any data type and applications on-premises and multiple cloud environments. It is also available in as-a-service or traditional CapEx procurement models.

Its unified data solutions help tackle some of the top priorities IT enterprises face today, including building scalable AI data pipelines for AI workloads, improving resiliency against ransomware attacks and modernizing legacy infrastructure.

CEO Kurian concluded, "We are well positioned with an expanded TAM, including block storage, and new market opportunities like AI to drive continued growth and share gains. We are moving to a higher product margin profile, supported by growth in all-flash products. And we will continue to maintain the operating discipline that has yielded record profitability."

NetApp analyst ratings and price targets are at MarketBeat. NetApp peers and competitor stocks can be found with the MarketBeat stock screener.

Daily Pennant Pattern

The daily candlestick chart on PSTG illustrates a pennant pattern. NTAP shares gapped 18% on its fiscal Q3 2024 earnings result on March 1, 2024. Shares formed a descending upper trendline comprised of lower highs against an ascending lower trendline comprised of higher lows nearing the apex. The large price gap acts as the flagpole. The pennant will eventually break out or break down as it reaches the apex point. The daily relative strength index (RSI) peaked at the 83-band as it fell toward the overbought 70-band.