EPS of $1.17 increased by 71.4% from previous year
Gross margin of 71.3%
Net income of 248.00M
"We started FY25 strong, building on our momentum exiting last fiscal year. In Q1, we delivered 8% year-over-year revenue growth and set records for first quarter operating margin and EPS." - George Kurian
NetApp Inc. (NTAP) QQ1 2025 Earnings Analysis: 8% Revenue Growth, Margin Expansion and AI-Driven Growth, Raised FY25 Guidance
Executive Summary
NetApp delivered a solid QQ1 2025 (Q1 FY25) with 8% year-over-year revenue growth to $1.541 billion and non-GAAP earnings per share of $1.56, supported by a robust gross margin of 72% and operating margin of 26%. The company highlighted strength across its Hybrid Cloud and all-flash portfolio, led by continued demand for high-performance flash, cloud storage, and AI workloads. Management raised the full-year revenue and EPS outlook, signaling confidence in the secular growth drivers around GenAI, data unification, and multicloud strategies. Keystone (storage-as-a-service) momentum and first-party marketplace cloud storage services continue to be meaningful growth levers, while Public Cloud revenue grew 3% YoY to $159 million, with cloud gross margins expanding to 71%.
The quarter featured notable AI-ready product introductions (AFF A-series) and strategic collaborations (GenAI toolkit with Azure NetApp Files, Bedrock reference architecture with AWS), underscoring NetApp’s positioning as a data infrastructure platform for AI across on-premises and cloud environments. NetApp also disclosed a new RPO disclosure of $4.5 billion and maintained disciplined capital allocation, including ~$300 million of free cash flow and continued buybacks, while signaling a balanced path to mid-to-upper single-digit revenue growth with double-digit EPS growth through FY27. While macro uncertainty remains a headwind for broader IT spending, NetApp’s differentiated product portfolio, multi-cloud capabilities, and AI-centric go-to-market strategy should support durable profitability and cash generation in FY25 and beyond.
Key Performance Indicators
Revenue
1.54B
QoQ: -7.56% | YoY:7.61%
Gross Profit
1.10B
71.25% margin
QoQ: -6.07% | YoY:10.24%
Operating Income
282.00M
QoQ: -22.95% | YoY:58.43%
Net Income
248.00M
QoQ: -14.78% | YoY:66.44%
EPS
1.20
QoQ: -14.89% | YoY:71.43%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $1.541B, up 8% YoY (Q1 FY25 vs Q1 FY24).
Gross margin: 72% (Q1), up ~160 bps YoY; product gross margin ~60%; recurring support gross margin 92%; Public Cloud gross margin 71% (vs 68% prior year).
Operating margin: 26%; EPS (non-GAAP): $1.56; EPS (GAAP): not disclosed in call, but reported non-GAAP results were above guidance; interest income contributed to margins.
Net income: $248M; Net income margin: ~16.1%.
Cash flow: Operating cash flow $341M; Free cash flow $300M; net cash position ending around $600M; cash and short-term investments total about $3.02B.
Financial Highlights
Financial highlights (non-GAAP unless noted):
- Revenue: $1.541B, up 8% YoY (Q1 FY25 vs Q1 FY24).
- Gross margin: 72% (Q1), up ~160 bps YoY; product gross margin ~60%; recurring support gross margin 92%; Public Cloud gross margin 71% (vs 68% prior year).
- Operating margin: 26%; EPS (non-GAAP): $1.56; EPS (GAAP): not disclosed in call, but reported non-GAAP results were above guidance; interest income contributed to margins.
- Net income: $248M; Net income margin: ~16.1%.
- Cash flow: Operating cash flow $341M; Free cash flow $300M; net cash position ending around $600M; cash and short-term investments total about $3.02B.
- Balance sheet: Total assets $9.31B; cash & equivalents $1.65B; short-term investments $1.37B; total liabilities $8.38B; total stockholders’ equity $0.93B; total debt about $2.65B with net debt around $0.996B.
- Working capital: DSO 40 days; inventory turns 8; deferred revenue $4.2B; RPO (unbilled commitments) $4.5B; deferred revenue non-current $2.036B; total deferred revenue around $6.14B (current plus non-current).
- Guidance (FY25): Revenue $6.48B–$6.68B (midpoint up ~5% YoY);
- Gross margin 71–72%; operating margin 27–28%; tax rate 20–21%; net interest income ~$50M; EPS $7.00–$7.20 (midpoint +10% YoY).
- Guidance (Q2 FY25): Revenue $1.565B–$1.715B; gross margin 71–72%; operating margin ~28%; tax rate 20–21%; net interest income ~$15M; EPS $1.73–$1.83.
- RPO and Keystone: Keystone revenue growth >60% YoY; RPO (unbilled commitments) $4.5B; continued progress toward higher-margin, recurring revenue mix.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.54B
7.61%
-7.56%
Gross Profit
1.10B
10.24%
-6.07%
Operating Income
282.00M
58.43%
-22.95%
Net Income
248.00M
66.44%
-14.78%
EPS
1.20
71.43%
-14.89%
Key Financial Ratios
currentRatio
0.96
grossProfitMargin
71.3%
operatingProfitMargin
18.3%
netProfitMargin
16.1%
returnOnAssets
2.66%
returnOnEquity
26.7%
debtEquityRatio
2.85
operatingCashFlowPerShare
$1.66
freeCashFlowPerShare
$1.46
dividendPayoutRatio
43.1%
priceToBookRatio
27.97
priceEarningsRatio
26.2
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes and quotes from the QQ1 FY25 earnings call:
- Strategy and AI leadership: George Kurian emphasized, “We started FY25 strong, building on our momentum exiting last fiscal year. In Q1, we delivered 8% year-over-year revenue growth and set records for first quarter operating margin and EPS.” He also highlighted GenAI and a hybrid cloud strategy: “GenAI is a truly hybrid workload and only NetApp has the breadth of products and services to reduce the complexity, resources, and risks for customers in managing these strategic workloads across increasingly complex hybrid multicloud environments.”
- AFF A-series and product portfolio: Kurian noted the AFF A-series “saw positive customer reception and performed ahead of our expectations,” with continued growth in capacity flash and block-optimized all-flash arrays.
- Cloud and Keystone: The company reiterated that Public Cloud revenue was $159M, up 3% YoY, with first-party and hyperscaler marketplace storage services growing roughly 40% YoY; Keystone (storage-as-a-service) growth exceeded 60% YoY.
- AI relevance and partnerships: NetApp highlighted integrations such as the NetApp GenAI toolkit with Microsoft Azure NetApp Files and a Bedrock reference architecture with AWS, reinforcing its cross-cloud AI data-management capabilities.
- Financial discipline and guidance: Mike Berry stated that the quarter “hit or exceeded all our guidance ranges” and management raised FY25 guidance, aiming for mid-to-upper single-digit revenue growth and double-digit EPS growth through FY27. He also pointed to a stronger gross margin and continued share repurchases, as part of a disciplined capital return program.
- Macro context and demand mix: Berry described ongoing macro uncertainty but noted broad-base strength in Asia Pacific and Europe, with some US public-sector softness due to budget cycles; enterprise demand remained solid as customers prioritized strategic projects and AI workloads.
- Balance sheet and liquidity: NetApp maintained a strong liquidity position with substantial cash, limited debt, and a clear plan for continued repurchases, including “approximately $1B remaining on our existing repurchase authorization.”
We started FY25 strong, building on our momentum exiting last fiscal year. In Q1, we delivered 8% year-over-year revenue growth and set records for first quarter operating margin and EPS.
— George Kurian
GenAI is a truly hybrid workload and only NetApp has the breadth of products and services to reduce the complexity, resources, and risks for customers in managing these strategic workloads across increasingly complex hybrid multicloud environments.
— George Kurian
Forward Guidance
Outlook and catalysts: NetApp’s FY25 revenue guidance was raised to $6.48B–$6.68B, implying roughly 5% YoY growth at the midpoint, with gross margins in the 71–72% range and operating margins in the 27–28% range. Q2 FY25 guidance contemplates revenue of $1.565B–$1.715B and EPS of $1.73–$1.83.
- Growth drivers: (1) AI/Data-centric workloads: AFF A-series, GenAI collaboration (Azure NetApp Files, Bedrock) and ongoing data-management leadership for AI lifecycles (preparation, training, RAG, inference). (2) Cloud economics: continued ramp in first-party and hyperscaler marketplace storage services, offset by lingering subscription-headwinds that management expects to subside during FY25. (3) Keystone: sustained double-digit growth as customers shift to flexible, service-based storage models.
- Margin trajectory: Public Cloud gross margins target 75–80% over the long term; overall product gross margins guided to be in the upper 50s to 60% range for the year as pre-purchases normalize. Recurring revenue gross margins remain high (~92%), supporting overall margin resilience even as mix shifts.
- Risks/monitorables: (1) Macroeconomic volatility and IT budget cycles could influence data-center refresh cadence. (2) NAND pricing and supply dynamics, though NetApp has pre-bought a large share of NAND for FY25, could impact future cost structures if demand shifts. (3) AI adoption pace and customer selectivity for GenAI deployments, particularly in enterprise environments.
- Assessment: The combinations of a diversified portfolio (AFF A-series, ASA, C-series), strong AI data-management capabilities, and multi-cloud integration position NetApp to generate durable revenue growth and expanding margin leverage through FY25 and beyond, albeit with continued sensitivity to macro conditions and SaaS/subscription mix shifts.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
NTAP Focus
71.25%
18.30%
26.70%
26.20%
ANET
63.70%
42.00%
8.11%
36.79%
DELL
21.60%
4.14%
-34.00%
23.07%
DDD
37.90%
-38.70%
-3.92%
-8.79%
SSYS
44.40%
-16.90%
-3.00%
-7.66%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
NetApp’s QQ1 2025 results corroborate a constructive yet cautious investment stance. The 8% YoY revenue growth and a 72% gross margin, coupled with a 26% operating margin and $1.56 non-GAAP EPS, demonstrate solid profitability amid macro headwinds. The key upside comes from AI-driven, data-centric storage solutions that enable hybrid multicloud architectures, evidenced by AFF A-series uptake, Keystone momentum (>60% YoY), and robust GenAI partnerships (Azure NetApp Files, Bedrock for AWS). The company’s FY25 guidance was raised to $6.48B–$6.68B with EPS of $7.00–$7.20 and Q2 targets pointing to continued mid-to-high single-digit revenue growth with expanding margins, which suggests durable earnings power if AI and cloud adoption sustains. The balance sheet remains healthy, with strong liquidity ($3.02B in cash and short-term investments) and a net cash position (~$0.6B), supporting ongoing buybacks and potential strategic investments.
Risks to watch include macro-driven IT spend volatility, subscription-service headwinds, NAND price volatility despite pre-purchase protections, and competition from both traditional and hyperscale storage vendors. If macro conditions stabilize and AI-driven storage demand accelerates in enterprise settings, NetApp could achieve higher-than-guidance outcomes. Conversely, a sharper slowdown in enterprise storage refresh cycles could compress near-term billings and margins. Overall, the growth trajectory looks favorable given NetApp’s differentiated AI-centric portfolio and multicloud capabilities, with a patient but positive stance on the stock at current levels.
Key Investment Factors
Growth Potential
AI-driven data infrastructure and multicloud leadership position NetApp for sustained growth in flash, block, and cloud storage. AFF A-series and C-series expansions, Keystone adoption, and GenAI integrations are expected to drive higher hardware and software revenue, with recurring revenue contribution increasing over time (recurring gross margins of 92% on support). RPO of $4.5B and deferred revenue of $4.2B provide visibility into future billings and revenue growth.
Profitability Risk
Macro uncertainty impacting IT spending; subscription service headwinds continue to weigh on near-term revenue mix; NAND price volatility and supply risk despite pre-buys; execution risk around deploying new GenAI workloads and customer adoption of ASA/A-series; competition from pure-play and large incumbent storage vendors. Valuation remains premium (P/E ~26x, P/B ~28x), reflecting the AI/data infrastructure growth narrative.
Financial Position
Strong liquidity with ~$3.02B in cash and short-term investments and ~600M net cash; manageable leverage with total debt ~2.65B and net debt ~1.0B; robust operating cash flow ($341M) and free cash flow ($300M); healthy gross margins with high-margin recurring revenue and improving cloud margins. Share repurchases and a disciplined capital allocation strategy support shareholder value.
SWOT Analysis
Strengths
Broad, differentiated product portfolio across Hybrid Cloud, all-flash arrays (AFF A-series, C-series, ASA), and cloud-storage services (Keystone, first-party/hyperscaler offerings).
Strong AI/data-management capabilities with GenAI integration and cloud-native tooling (Azure NetApp Files, Bedrock reference architecture).
Leading position in data unification for AI workflows (data lakes, RAG, model training, inference) and hybrid multi-cloud portability.