NetApp Shares Plunge After Missing Revenue Expectations and Lowering Outlook

GuruFocus
01 Mar

NetApp (NTAP -17%) experienced a significant drop to a 10-month low after missing Q3 revenue expectations and lowering its FY25 revenue outlook. Despite a strong rally in 2024, the storage and data services provider for enterprises faced challenges in 2025.

In Q3, NTAP's revenue grew only 2.2% year-over-year to $1.64 billion, which was below expectations. CEO George Kurian attributed this to inconsistent execution and deals slipping out of the quarter. To address this, NTAP has implemented tighter controls on deal progression and closing plans, expecting these measures to improve future execution. Some previously delayed deals have since closed.

Despite these setbacks, NTAP's C-series capacity flash arrays, Storage GRID systems, and all-flash block systems showed growth in Q3. All-flash array sales rose by 10%, and the Hybrid Cloud segment, comprising about 90% of total revenue, saw a 1% increase. Keystone, NTAP's storage-as-a-service offering, was a standout, achieving nearly 60% year-over-year growth.

AI demand remains robust, with NTAP's AI business surpassing internal expectations. The company secured over 100 infrastructure and data lake wins across various regions and sizes, serving prominent AI companies like Microsoft (MSFT, Financial) and NVIDIA (NVDA, Financial).

NTAP continued to strengthen its partnerships with Big Tech, introducing innovations for services used by Amazon (AMZN, Financial), Google (GOOG, Financial), and MSFT.

However, NTAP's guidance overshadowed these positive developments. The company now expects FY25 revenues between $6.49-6.64 billion, down from $6.54-6.74 billion, with Q4 revenues projected at $1.65-1.80 billion, falling short of consensus. The adjusted EPS outlook was also lowered to $7.17-7.27, down from $7.20-7.40, partly due to FX headwinds impacting earnings and revenue forecasts.

Despite efforts to reassure investors about future sales execution improvements, NTAP's downgraded guidance amid strong AI demand has led to a significant sell-off, with investors opting to exit now and reassess later.

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