NetApp CEO Acknowledges 'Disappointing' Revenue, Analysts Remain On The Sidelines

NetApp Inc. NTAP reported fiscal first-quarter results, which beat analyst expectations but NetApp CEO George Kurian acknowledged he's disappointed with the revenue performance -- a sentiment shared by some Street analysts.

The Analysts

Wells Fargo analyst Aaron Rakers maintains a Market Perform rating on NetApp with a price target lowered from $53 to $50.

Morgan Stanley analyst Katy Huberty maintains at Underweight, $41 price target.

Raymond James' Simon Leopold maintains at Market Perform, no price target.

Wells Fargo: 3 Key Metrics

NetApp's quarter had three main takeaways, Rakers wrote in a note. These include:

1. All-flash revenue growth declined 24% year-over-year after growing 19% in the prior quarter.
2. Cloud Data Services revenue totaled $61 million at an annualized monthly run rate versus $51 million last quarter.
3. Total Private cloud revenue rose 85% year-over-year to $250 million/annum.

Related Link: Analysts Weigh In On NetApp's Weak Q4, Stay Largely Bullish Chances Of Inflection

Morgan Stanley: Underperforming The Market

NetApp's quarter saw a high-teens decline in all-flash array revenue, which Huberty said is likely "meaningfully worse" compared to the overall market in the July-ending quarter. The company cited its large exposure to big enterprise clients who showed a shorter-term approach to buying activity in the quarter which was expected.

Management's fiscal 2020 revenue guidance calls for 13% revenue growth, which is above the average growth rate of 11%. The guidance could prove to be "aggressive" if customers continue scaling back purchases. The addition of 200 new sales members is unlikely to generate any benefits in the current fiscal year although it can prove to be a contributing factor to revenue next year.

Huberty said NetApp could face further challenges from competitor Dell with its mid-range product launch. Other potential headwinds include the global macro environment.

Raymond James: Time Is Needed

NetApp's management argued the poor performance wasn't due to growing competition but third-party market research may suggest otherwise, Leopold said. The company typically boasts loyal clients but main competitors have yet to report their earnings and current expectations calls for rivals to "perform relatively better."

Leopold said any new "re-invigoration" in the business will take time to show benefits while the macro environment remains "uncertain." As such, investors may want to consider sticking to the sidelines for the time being.

"We expect further debate regarding competition and market share to overhang the stock," the analyst wrote in a note.

Price Action

Shares of NetApp were trading higher by 4.2% at $46.63.