DA Davidson Reviews NetApp's Q4: 'Transition To Growth Continues'

NetApp Inc. NTAP reported its F4Q results and announced F1Q guidance below expectations. DA Davidson’s Mark Kelleher maintained a Buy rating for the company, while reducing the price target to $35.

NetApp reported its April quarter revenue at $1,380.0 mm, missing the DA Davidson estimate of $1,403.5mm and the consensus expectation of $1,405.0mm. The adj. EPS came in at $0.55, below the DA Davidson estimate of $0.58 and the consensus expectation of $0.59.

Key Takeaways

Analyst Mark Kelleher mentioned three key takeaways:

• Disappointing guidance – This is likely to exert pressure on the company’s shares. NetApp’s revenue growth was impacted by a sluggish macro environment and continued headwinds of product transition, and it likely to continue to be impacted, Kelleher said. He wrote further, “Increased spending on customer incentives to transition to Clustered ONTAP pulled product gross margins down.”
• Product mix – Strategic solutions contributed 61 percent of product revenue in the quarter, up from 55 percent in the prior quarter. Mature products contributed the remaining 41 percent of revenue, but these were down 40 percent y/y.
• Impact of SolidFire - The company completed the SolidFire acquisition on February 2. SolidFire contributed nominal revenue, while increasing NetApp’s cost structure. This is likely to continue till SolidFire revenues ramp.