Executive Summary
NetApp delivered a solid Q2 FY2025, underscored by a durable margin profile and continued strength across core storage platforms. Revenue rose 6% year over year to $1.658 billion, supported by a 19% year-over-year spike in all-flash storage revenue and robust growth in first-party and marketplace cloud storage services. The company achieved a record Q2 operating margin (approximately 29%) and non-GAAP EPS of $1.87, with GAAP net income of $299 million. Management highlighted sustained momentum in AI-related data infrastructure, with well over 100 AI and data-lake modernization wins in the quarter, and reiterated that enterprise AI is still in the early stages with the majority of activity anticipated in the second half of calendar year 2025 and beyond.
NetApp’s Hybrid Cloud segment continued to post solid results, with all-flash revenue up 19% YoY and the All-Flash Array (AFA) run rate hitting an all-time high of $3.8 billion. Public Cloud revenue increased 9% YoY to $168 million, led by first-party and marketplace storage services, which grew roughly 43% YoY. Keystone (Storage-as-a-Service) remained a key growth engine, growing about 55% YoY, with unbilled RPO at $330 million QoQ and remaining RPO at $4.4 billion. The company reaffirmed its long-term target of mid-to-upper single-digit revenue growth and double-digit EPS growth through FY2027, and raised FY2025 revenue guidance to $6.54–$6.74 billion with EPS of $7.20–$7.40 (midpoint implying ~13% YoY growth).
Management signaled continued discipline on capital allocation, returning cash to shareholders (over $400 million in Q2 via dividends and buybacks) and maintaining a healthy balance sheet (~$2.2 billion in cash and short-term investments with roughly $2.0 billion of debt). Near-term headwinds include higher SSD-related inventory levels from strategic purchases in 2024–2025, with expectations that SSD cash outlays will ease in the second half of FY2025, supporting a higher cash flow in H2 relative to H1. Investors should monitor macro rhythm, NAND pricing dynamics, and the cadence of AI-related deployments as key factors shaping the back half of FY2025 and into FY2026.
Key Performance Indicators
Key Insights
Revenue: $1.658B, up 6% YoY, up ~7.6% QoQ; Gross Profit: $1.177B, 72.0% gross margin; Operating Income: $345M, 20.8% operating margin; Net Income: $299M, 18.0% net margin; EBITDA: $438M; EPS (Non-GAAP): $1.87; EPS (GAAP): $1.47; Weighted Avg Shares (Non-GAAP): 206–210M; Free Cash Flow: $60M; Operating Cash Flow: $105M; Cash & ST Investments: ~$2.2B; Total Debt: ~$2.0B; Deployed Cash Returns: >$406M in buybacks/dividends; Deferred Revenue: $4.1B; RPO (remaining): $4.4B; Unbilled RPO: ~$3...
Financial Highlights
Revenue: $1.658B, up 6% YoY, up ~7.6% QoQ; Gross Profit: $1.177B, 72.0% gross margin; Operating Income: $345M, 20.8% operating margin; Net Income: $299M, 18.0% net margin; EBITDA: $438M; EPS (Non-GAAP): $1.87; EPS (GAAP): $1.47; Weighted Avg Shares (Non-GAAP): 206–210M; Free Cash Flow: $60M; Operating Cash Flow: $105M; Cash & ST Investments: ~$2.2B; Total Debt: ~$2.0B; Deployed Cash Returns: >$406M in buybacks/dividends; Deferred Revenue: $4.1B; RPO (remaining): $4.4B; Unbilled RPO: ~$330M QoQ; Public Cloud revenue: $168M, +9% YoY, +43% YoY growth in first-party/hyperscaler cloud storage services; Public Cloud gross margin: 74% (Q2); All-Flash storage revenue growth: ~19% YoY; Keystone contribution: growth ~55% YoY; NetApp INSIGHT AI momentum: 100+ AI/data-lake modernization wins; Gross margin dollars growth: mid-to-high single digits; Guidance raised for FY2025: Revenue $6.54–$6.74B; Gross Margin 71–72%; Operating Margin 28–28.5%; Tax rate 20–21%; Net Interest Income $55M; Q3 Revenue Guidance: $1.61–$1.76B; EPS $1.85–$1.95.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
1.66B |
6.15% |
7.59% |
| Gross Profit |
1.18B |
6.04% |
7.19% |
| Operating Income |
345.00M |
13.49% |
22.34% |
| Net Income |
299.00M |
28.33% |
20.56% |
| EPS |
1.47 |
31.25% |
22.50% |
Key Financial Ratios
operatingProfitMargin
20.8%
operatingCashFlowPerShare
$0.52
freeCashFlowPerShare
$0.29
dividendPayoutRatio
35.5%
Management Commentary
Key management themes from the earnings call include: (1) AI momentum and data-centric AI strategy, highlighted by 100+ AI/data-lake modernization wins in Q2 and GenAI collaboration plans with industry leaders; (2) Strength in the All-Flash portfolio and continued share gains in the AFAs, reaffirming NetApp’s market leadership in flash storage; (3) Public Cloud growth and margin stabilization, with public cloud gross margins expanding to 74% and expectations to exit FY2025 at the lower end of the 75–80% target; (4) Keystone as a pivotal growth platform, driving strong RPO and unbilled revenue trajectory; (5) Partnerships and ecosystem expansion, including Google Cloud Distributed Cloud collaboration, NVIDIA/AIPod and Lenovo collaboration to accelerate AI-ready infrastructure; (6) Balance sheet discipline and capital allocation, with cash generation, debt repayment, and a remaining repurchase authorization of about $800M; (7) Sensitivity to NAND pricing and SSD supply dynamics, including pre-buys that influenced inventory levels.
"Revenue growth was driven by a 19% year-over-year increase in all-flash storage and strong performance in first-party and marketplace cloud storage services. We achieved record Q2 operating margin and EPS, ahead of our expectations."
— George Kurian
"Our AI business performed ahead of our expectations in Q2 with well over 100 AI and data-lake modernization wins. These wins span geographies and industries."
— George Kurian
Forward Guidance
Full-year guidance raised: Revenue $6.54B–$6.74B (~6% YoY at the midpoint); Gross margin 71%–72%; Gross margin dollars around $4.75B; Operating margin 28%–28.5%; Net interest income ~$55M; Tax rate 20%–21%; EPS $7.20–$7.40 (midpoint ~13% YoY growth). Q3 guidance: Revenue $1.61B–$1.76B; Gross margin 71%–72%; Operating margin ~29%; Net interest income ~$10M; Tax rate 20%–21%; EPS $1.85–$1.95. Management reiterates a long-term objective of double-digit EPS growth on average from FY2025–FY2027 and notes that Q3 EPS guidance normalizes after a record Q3 prior-year product gross margin and a unusually low tax rate. The company also expects SSD-related cash outflows to slow in the second half of FY2025, enabling higher cash flow generation later in the year. Investors should monitor AI deal cadence, Keystone adoption, NAND pricing and inventory dynamics, and the progression toward double-digit EPS growth through FY2027 as key factors for the remainder of FY2025 and FY2026.