- Q4 Revenue Growth: HPE reported $9.7 billion in Q4 revenue, a 14% year-over-year increase, with non-GAAP operating profits rising 26% and a record non-GAAP operating margin of 12.2%.
- Annual Revenue Expansion: Full-year revenue reached $34.3 billion, up 14% YoY, driven by the Juniper acquisition, which boosted networking revenue by 51%.
- ARR Surge: Annual Recurring Revenue (ARR) grew 62% YoY to $3.2 billion, with 80% from software and services, including Juniper’s Mist and Apstra subscriptions.
- Free Cash Flow & Guidance: HPE generated $1.9 billion in Q4 free cash flow (capping $986 million for the year) and raised FY2026 EPS guidance to $2.25–$2.45 and cash flow guidance midpoints.
- Strategic Asset Sale: The $1.4 billion sale of HPE’s remaining stake in H3C (expected in 2026) supports reducing net leverage to ~2x by FY2027, aligning with long-term targets of $3 EPS and $3.5 billion free cash flow by FY2028.
Segment Performance
The networking segment was a significant contributor to HPE's revenue growth, with Q4 revenue reaching $2.8 billion, up 150% year-over-year and 62% sequentially. The server business generated revenue of $4.5 billion, down 5% year-over-year, while Hybrid Cloud revenue was $1.4 billion, down 13% year-over-year. Financial Services revenue was $889 million, roughly flat sequentially and down 2% year-over-year. The addition of Juniper's software subscription services drove the increase in Annual Recurring Revenue (ARR) to $3.2 billion.
Guidance and Outlook
HPE expects revenue growth of 17-22% on a reported basis and 5-10% on a pro forma basis for FY 2026, with a non-GAAP diluted net EPS range of $2.25-$2.45. The company is raising its full-year networking revenue growth outlook to 65-70% on a reported basis. Management expressed confidence in HPE's strategy and its ability to drive transformation and growth in 2026. Analysts estimate next year's revenue growth at 17.5%. With a P/E Ratio of 1109.84 and an EV/EBITDA of 26.83, the market is pricing in high expectations for HPE's future growth.
Valuation and Profitability
The company's actual EPS of $0.62 beat estimates of $0.579. HPE's ROE is 0.11%, and ROIC is -0.16%, indicating room for improvement in profitability. With a Net Debt / EBITDA ratio of 9.4, HPE's leverage is relatively high. However, the sale of its remaining 19% stake in H3C for approximately $1.4 billion is expected to support its plan to reduce net leverage to around two times by the end of fiscal year 2027.
Key Drivers and Challenges
The integration of Juniper and HPE has led to cross-pollination opportunities, such as combining Mist and Aruba Central, which will add more software to the subscription model. However, HPE faces challenges related to demand elasticity and commodity prices, particularly with server DRAM costs rising 50% in April. The company has made pricing changes to reflect these increased costs and expects a rebalancing between units and revenue over time.