NetApp (NTAP)

Data storage company NetApp (NASDAQ:NTAP) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 1.2% year on year to $1.56 billion. The company expects next quarter’s revenue to be around $1.69 billion, close to analysts’ estimates. Its non-GAAP profit of $1.55 per share was 0.7% above analysts’ consensus estimates.

Company Overview

Founded in 1992 as a pioneer in networked storage technology, NetApp (NASDAQ:NTAP) provides data storage and management solutions that help organizations store, protect, and optimize their data across on-premises data centers and public clouds.

The Hardware & Infrastructure sector will be buoyed by demand related to AI adoption, cloud computing expansion, and the need for more efficient data storage and processing solutions. Companies with tech offerings such as servers, switches, and storage solutions are well-positioned in our new hybrid working and IT world. On the other hand, headwinds include ongoing supply chain disruptions, rising component costs, and intensifying competition from cloud-native and hyperscale providers reducing reliance on traditional hardware. Additionally, regulatory scrutiny over data sovereignty, cybersecurity standards, and environmental sustainability in hardware manufacturing could increase compliance costs.

NetApp competes with Dell Technologies (NYSE:DELL) through its storage division Dell EMC, Pure Storage (NYSE:PSTG) in the all-flash storage market, and Hewlett Packard Enterprise (NYSE:HPE). In cloud storage, it faces competition from cloud providers' native storage offerings from Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOGL).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $6.59 billion in revenue over the past 12 months, NetApp is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because it’s challenging to maintain high growth rates when you’ve already captured a large portion of the addressable market. To expand meaningfully, NetApp likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, NetApp’s 3.8% annualized revenue growth over the last five years was tepid. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. NetApp’s annualized revenue growth of 3.1% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, NetApp reported modest year-on-year revenue growth of 1.2% but beat Wall Street’s estimates by 0.9%. Company management is currently guiding for a 1.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months, similar to its two-year rate. While this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

NetApp has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 18.8%.

Analyzing the trend in its profitability, NetApp’s operating margin rose by 1.3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, NetApp generated an operating margin profit margin of 19.8%, up 1.5 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

NetApp’s EPS grew at a remarkable 11.7% compounded annual growth rate over the last five years, higher than its 3.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into NetApp’s earnings to better understand the drivers of its performance. As we mentioned earlier, NetApp’s operating margin expanded by 1.3 percentage points over the last five years. On top of that, its share count shrank by 8.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For NetApp, its two-year annual EPS growth of 14.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, NetApp reported adjusted EPS of $1.55, down from $1.56 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects NetApp’s full-year EPS of $7.26 to grow 10.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

NetApp has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 20.4% over the last five years.

Taking a step back, we can see that NetApp’s margin expanded by 6.9 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

NetApp’s free cash flow clocked in at $726 million in Q2, equivalent to a 46.6% margin. This result was good as its margin was 27.1 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

NetApp is a profitable, well-capitalized company with $3.32 billion of cash and $2.49 billion of debt on its balance sheet. This $839 million net cash position is 3.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see NetApp narrowly top analysts’ revenue expectations this quarter. We were also happy its EPS guidance for next quarter narrowly outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance was in line. Zooming out, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 5.8% to $105.60 immediately following the results.

Updated: November 15, 2025 at 11:10 PM EST

Before making an investment decision, investors should account for NetApp’s business fundamentals and valuation in addition to what happened in the latest quarter.

NetApp isn’t a bad business, but we have other favorites. Although its revenue growth was uninspiring over the last five years, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

NetApp’s P/E ratio based on the next 12 months is 13.6x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $120.79 on the company (compared to the current share price of $110.75).