NetApp’s Earnings Call: Record Growth Amid Caution

NetApp Inc ((NTAP)) has held its Q4 earnings call. Read on for the main highlights of the call.

NetApp Inc’s recent earnings call painted a picture of robust growth and achievement, tempered by cautious optimism for the future. The company celebrated record revenue achievements, driven by significant growth in all-flash arrays and cloud services, alongside a strong expansion in its AI business. However, the call also highlighted challenges such as macroeconomic uncertainties, potential impacts from divestiture, and geopolitical concerns, leading to a cautious outlook for fiscal year 2026.

Record Revenue Achievement

NetApp reported record revenue for the fourth quarter and fiscal year 2025, fueled by impressive growth in all-flash storage and cloud services. This achievement marked all-time highs for gross profit, operating profit, operating margin, and earnings per share (EPS), underscoring the company’s strong financial performance.

Significant Growth in All-Flash Array

The company’s all-flash array segment saw an annualized revenue run rate increase of 14% year over year, reaching a record $4.1 billion. This growth enabled NetApp to gain 300 basis points of market share in calendar 2024, highlighting its competitive edge in the storage market.

Strong Public Cloud Segment Growth

NetApp’s public cloud segment experienced a 22% growth, excluding the divested Spark business, with first-party and marketplace cloud storage services growing 44% year over year in Q4. This underscores the company’s successful expansion in the cloud services domain.

AI Business Expansion

NetApp’s AI business demonstrated remarkable growth, expanding fivefold year over year in Q4. The company closed approximately 150 AI infrastructure and data lake modernization deals, showcasing its strategic focus on AI-driven solutions.

Financial Performance and Shareholder Returns

In Q4, NetApp achieved an operating margin of 28.6%, the highest for a fourth quarter in its history. EPS grew 7% year over year, and the company returned $355 million to shareholders through share repurchases and dividends, reflecting its commitment to delivering value to investors.

Macroeconomic and Public Sector Challenges

The earnings call highlighted caution due to global macroeconomic uncertainties, including a slowdown in growth, lingering inflation concerns, and uncertainties in the US public sector and EMEA. These factors contribute to a cautious outlook for the future.

Impact of Divestiture on Public Cloud Revenue

The divestiture of the Spot business is expected to negatively impact reported public cloud and total revenue growth for fiscal year 2026. Spot had generated around $95 million annually, and its absence will be felt in the company’s financials.

Uncertainty in Manufacturing and Tariffs

Concerns about tariffs affecting manufacturing-centered economies in Europe were noted, causing enterprises to slow down spending. This uncertainty adds another layer of complexity to NetApp’s strategic planning.

Guidance and Strategic Uncertainty

Despite strong competitive positioning, NetApp’s guidance reflects caution due to geopolitical situations and uncertainty in trade policies, which could potentially impact revenue growth. The company expects total revenue for fiscal year 2026 to range between $6.625 billion and $6.875 billion, indicating a 3% year-over-year growth at the midpoint. Excluding the divested Spot business, this implies a 4% growth. NetApp plans to return up to 100% of free cash flow to shareholders through dividends and share buybacks, while also investing in AI and public cloud services to capture additional market share.

In conclusion, NetApp’s earnings call showcased a blend of record achievements and cautious optimism. While the company celebrates significant growth in key areas like all-flash arrays, cloud services, and AI, it remains vigilant about macroeconomic and geopolitical challenges. The forward-looking guidance reflects a strategic approach to navigating uncertainties while capitalizing on growth opportunities.