- Revenue & EPS Growth: Q2 revenue reached $1.71B (+3% YoY), with non-GAAP EPS at $2.05, reflecting strong performance.
- All-Flash & Cloud Revenue: 70% of Q2 revenue from all-flash and public cloud, with all-flash revenue climbing 9% YoY to $1B.
- Gross Margin Expansion: Record Q2 gross margin of 59% driven by operational discipline and higher-margin product mix, exceeding guidance.
- Capital Return: $353M returned to shareholders via $250M share repurchases and $103M dividends in Q2.
- Hyperscale Growth: First-party hyperscale services revenue surged 32% YoY, highlighting cloud infrastructure strength.
Segment Performance
The company's first-party hyperscale services business grew 32% year-over-year, and cloud revenue growth rate has been consistent in the high teens. NetApp is positive about the growth of its first-party and marketplace cloud services business, introducing innovations to capture AI and data-intensive workloads on the cloud. The storage-as-a-service model is growing, driven by customers' maturity in using cloud-based business models.
Guidance and Outlook
NetApp expects Q3 revenue of $1.69 billion, plus or minus $75 million, and EPS of $2.01 to $2.11. For the full year, the company expects revenue of $6.625 billion to $6.875 billion and EPS of $7.75 to $8.05. The guidance suggests acceleration in the second half of the year, driven by growth in non-U.S. public segments. Wissam Jabre mentioned that product gross margins are expected to remain relatively unchanged through the rest of the year, around 59%.
Valuation
With a P/E Ratio of 19.14 and EV/EBITDA of 13.51, NetApp's valuation appears reasonable considering its strong performance and growth prospects. The company's ROE of 120.04% and ROIC of 18.71% indicate efficient capital allocation. Analysts estimate next year's revenue growth at 2.9%, which is relatively modest. The Dividend Yield is 1.87%, providing a relatively stable return for shareholders.
AI and Cloud Opportunities
The company closed 200 AI-related deals in the quarter, with a stable mix of transactions, and growth in the number of wins. NetApp is well-positioned to capture the growing demand for AI and cloud services, with its unified data management, hybrid cloud deployment options, and built-in cyber resilience solutions.
Operational Highlights
The company has secured supply commitments and pricing through the end of the fiscal year and will take actions to guarantee supply for the next fiscal year. Operating expenses are expected to be slightly higher in the second half as the company continues to invest in growth. All Flash growth accelerated well in the quarter, driven by AI, portfolio refresh, and strong results in the high-performance flash area.