VALUATION HIGHLIGHTS

1. Services constitute 55% of the Trefis price estimate for NetApp's stock.
2. Product constitutes 43% of the Trefis price estimate for NetApp's stock.

WHAT HAS CHANGED?

1. Latest Earnings - Q2 FY'25

NetApp posted a better-than-expected set of Q2 FY'25 results. Its revenue rose 6% year-over-year to $1.66 billion. The company reported a 19% y-o-y increase in all-flash storage, contributing to strong revenue growth. Keystone, the storage as a service offering, saw revenue growth of approximately 55% y-o-y. Public cloud segment revenue grew 9% y-o-y, with first-party and marketplace cloud storage services increasing by 43%. That said, The public cloud subscription services segment is declining sequentially, impacting overall cloud revenue growth. The company achieved a record Q2 operating margin and EPS, exceeding expectations.

Note: NetApp's FY'24 ended on April 26, 2024. Q2 FY'25 ended on October 25, 2024.

2. Guidance

The company expects full-year 2025 revenue to range between $6.54 billion to $6.74 billion. It also expects non-gaap operating margin of around 28%-28.5% resulting in adjusted EPS expectation of $7.20 to $7.40.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of NetApp's value that present opportunities for upside or downside to the current Trefis price estimate of NetApp:

Storage Infrastructure

• Products Revenue: We currently forecast NetApp's Products revenue to grow at a CAGR of 3.5% through the end of the Trefis forecast period. However, there could be a 25% upside to the Trefis price estimate if NetApp's product revenue can grow at 9% instead, led by higher demand for next-generation storage solutions.
• Netapp's Gross Margin: We currently forecast that the company's gross margin will see modest growth to around 72% in the coming years. There could be a 15% upside to the Trefis price estimate if the gross margins improved to 77% by the end of our forecast period.

For additional details, select a driver above or select a division from the interactive Trefis split for NetApp at the top of the page.

BUSINESS SUMMARY

NetApp, Inc. is a global cloud-led, data-centric software company that provides organizations the ability to manage and share their data across on-premises, private and public clouds. They provide a full range of enterprise-class software, systems, and services solutions that customers use to modernize their infrastructures, build next-generation data centers, and harness the power of hybrid clouds.

SOURCES OF VALUE

NetApp Gaining Share in Storage Infrastructure Market

Over the years NetApp has witnessed an increase in its share of the storage infrastructure solutions market. Demand for NetApp's all-flash and hybrid systems, which are a combination of hardware and software, has risen strongly over the past couple of years. In addition, NetApp provides hardware and software support to its clients and customer education and training services, essentially covering an exhaustive group of cloud services.

KEY TRENDS

Demand for Cloud Storage Surging

The trend over the past few years has been away from hardware portable storage devices to cloud storage, and this has benefited NetApp. This trend is expected to continue as more and more enterprises switch to the cloud, pushing demand for NetApp's cloud solutions infrastructure products even higher.

Transition To Flash

There has been a sharp decline in NAND pricing over the last few quarters, and several companies are transitioning to flash-based storage devices. NetApp is benefiting from the trend with an increasing mix of flash-based storage device sales.

1. Strong run of acquisitions

NetApp completed the acquisition of Spot Inc., Cloud Jumper Corp., and Data Mechanics Inc. between April 2020 and June 2021. These acquisitions will help NetApp to strengthen its position in big data and cloud analytics (via Spot and Data Mechanics), and remote and virtual desktop services (via Cloud Jumper). In 2022, the company acquired Fylamynt, a CloudOps automation technology company, and Instaclustr, an open-source database startup.