NetApp, Inc. (NTAP) Q1 2025 Earnings Summary

Executive Summary

• Q1 FY25 delivered 8% YoY revenue growth to $1.54B and record first-quarter non-GAAP operating margin (26%) and EPS ($1.56), above guidance ranges; management raised full-year FY25 revenue ($6.48–$6.68B) and EPS ($7.00–$7.20) outlook .
• Hybrid Cloud revenue grew 8% YoY; product revenue rose 13% YoY on strong all‑flash demand; AFA ARR reached $3.4B (+21% YoY). First-party and marketplace cloud storage services grew ~40% YoY; public cloud revenue +3% YoY .
• Added disclosure of RPO ($4.5B) and returned $507M to shareholders in Q1 via buybacks and dividends; ended Q1 with ~$3.0B cash/short-term investments and ~ $600M net cash .
• Near-term catalysts: raised FY25 guide; cloud storage acceleration as subscription headwinds fade; strong AI pipeline (50+ wins) and new AFF A‑Series traction; watch CFO transition and NAND pricing dynamics (pre-buys mitigate) .

What Went Well and What Went Wrong

What Went Well

• Record first-quarter operating margin (26%) and non-GAAP EPS ($1.56), exceeding guidance; billings up 12% YoY; consolidated gross margin ~72% near all-time highs .
• All‑flash momentum: product revenue +13% YoY; AFA ARR $3.4B (+21% YoY); strong adoption of new AFF A‑Series; Keystone revenue grew >60% YoY in Q1 .
• Cloud storage: first‑party/marketplace services +~40% YoY, performing ahead of expectations across hyperscalers; public cloud GM improved to 71% (long‑term target 75–80%) .
  • Quote: “We are raising our FY ’25 outlook for both revenue and profit…” .
  • Quote: “Public cloud segment revenue was $159 million, up 3% year-over-year… increasing roughly 40% year-over-year” .

What Went Wrong

• Operating cash flow decreased 25% YoY to $341M (FCF down 28% to $300M) due to higher incentive payouts and SSD strategic purchase payments .
• U.S. public sector softness (federal) amid budget constraints; macro/geopolitical uncertainty persists; large-scale refresh cycles not yet evident .
• Product gross margin expected to step down through FY25 as pre‑buy inventory is utilized; NAND pricing supportive of industry price increases, but margin trajectory moderates vs first half .

Financial Results

Segment and revenue mix:

KPIs and cash metrics:

Notes:

• Q1 FY25: product revenue +13% YoY; Keystone revenue +>60% YoY; first-party/marketplace cloud storage +~40% YoY .
• Q1 FY25 consolidated gross margin 72%; record first-quarter non-GAAP operating margin 26% and EPS $1.56 .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We started FY ’25 strong… delivered 8% year-over-year revenue growth and set records for first quarter operating margin and EPS… raising our FY ’25 outlook for both revenue and profit.” — George Kurian .
• “Product revenue growing 13% year-over-year… all‑flash array annualized revenue run rate to $3.4 billion, up 21% year-over-year.” — George Kurian .
• “First party and marketplace storage services… increasing roughly 40% year-over-year… performing ahead of our expectations at each of our hyperscaler partners.” — George Kurian .
• “Gross margin leverage and operating discipline drove operating margin of 26% and EPS of $1.56, both Q1 records.” — Mike Berry .
• “We are raising our fiscal year ’25 revenue… to $6.48–$6.68 billion… and EPS to $7.00–$7.20.” — Mike Berry .

Q&A Highlights

• NAND pricing and margin trajectory: NTAP pre‑bought a large majority of FY25 NAND; product GM expected upper 50s–60% for FY25, stepping down later as pre‑buys are consumed .
• AFF A‑Series/ASA adoption: Strong early adoption; wins across high-performance workloads (databases, AI); ASA driving share gains vs legacy block storage .
• Macro and demand: Broad-based strength in APAC/EMEA; U.S. public sector softness; customers prioritizing strategic projects over broad refreshes .
• Cloud trajectory: First‑party/marketplace storage slightly better than expected; subscription headwinds moderating through FY25; expect acceleration as the year progresses .
• AI demand mix: Mostly large enterprises; use cases across data lakes, fine‑tuning, inferencing; inferencing expected to be 80–90% of enterprise AI storage opportunity .

Estimates Context

• S&P Global consensus estimates for Q1 FY25 and FY25 were unavailable at time of analysis due to data access limits; comparisons to Wall Street consensus are therefore not included. The company reported Q1 revenue above the midpoint of guidance and non‑GAAP EPS above the high end, and raised FY25 revenue and EPS guidance .
• If updated S&P Global consensus becomes available, we would assess potential upward revisions to FY25 EPS and revenue given the raised guidance and stronger public cloud gross margins.

Key Takeaways for Investors

• Mix-driven margin resiliency: Continued shift to all‑flash and high‑margin support keeps consolidated GM ~71–72%, with product GM expected in upper 50s–60% despite NAND inflation .
• Cloud turning point: First‑party/marketplace services growing ~40% YoY; subscription headwinds diminishing; public cloud GM improved to 71% (path to 75–80%) — constructive for multi‑year cloud profitability .
• Raised FY25 guide: Revenue midpoint +$30M and EPS midpoint +$0.20 support near‑term confidence; Q2 guide implies ~5% YoY growth with ~28% OM .
• AI pipeline expanding: 50+ wins and differentiated hybrid data pipelines (Azure/Bedrock integrations) suggest durable enterprise AI storage and data lake demand .
• Cash returns & balance sheet: $507M returned in Q1; ~$3.0B cash and ~ $600M net cash provide ample capacity for continued buybacks/dividends .
• Watch items: CFO transition through May 2025; U.S. federal spending softness; NAND pricing path and competitive pricing responses .
• Trading angle: The combination of record profitability metrics, raised full-year guide, and accelerating cloud gross margin is supportive; monitor execution in AFF A‑Series/ASA ramps and cloud subscription normalization for further multiple support .

Data sources: NTAP Q1 FY25 8-K and press release; Q1 FY25 earnings call transcript; Q4 and Q3 FY24 8-Ks.