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NetApp, Inc. (NTAP) Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 delivered net revenues of $1.658B (+6% YoY) with non-GAAP EPS of $1.87, above the high end of guidance; GAAP EPS was $1.42 and GAAP operating margin was 20.8% .
  • All-flash array annualized revenue run rate reached a record $3.8B (+19% YoY), while first-party and marketplace cloud storage services revenue grew ~43% YoY; public cloud segment revenue was $168M (+9% YoY) with segment gross margin at 73.8% .
  • FY25 guidance was raised across revenue, operating margin, and EPS: revenue to $6.54–$6.74B, non-GAAP operating margin to 28–28.5%, and non-GAAP EPS to $7.20–$7.40; gross margin guidance unchanged at 71–72% non-GAAP .
  • Near-term cash flow was impacted by strategic SSD prebuys; management expects stronger H2 cash generation, cloud margins exiting FY25 at the lower end of the long-term 75–80% target, and continued momentum in AI and Keystone subscriptions .

What Went Well and What Went Wrong

What Went Well

  • Record Q2 operating leverage: non-GAAP operating margin of 28.6% and non-GAAP EPS of $1.87, driven by strong gross margins and disciplined OpEx; CFO: “EPS of $1.87 was above the high end of our guidance” .
  • Flash and cloud momentum: all-flash ARR hit $3.8B (+19% YoY); first-party and marketplace cloud storage services up ~43% YoY; public cloud GM improved to ~74% .
  • AI traction: “well over 100 AI and data lake modernization wins” across major verticals and expanded Google Distributed Cloud collaboration for regulated sectors .

What Went Wrong

  • Free cash flow down YoY to $60M (vs $97M in Q2 FY24) and operating cash flow $105M (vs $135M), primarily due to upfront SSD prebuy payments; inventory turns fell to 6x .
  • Slight sequential decline expected in product gross margins in H2 FY25 from higher NAND costs despite supply secured; product GM guidance to remain in high-50s for FY25 .
  • Subscription cloud headwinds continue by design as mix shifts to first-party/marketplace; public cloud revenue growth remains constrained by this transition, although accelerating into H2 .

Financial Results

MetricQ2 FY24Q1 FY25Q2 FY25
Net Revenues ($USD Billions)$1.562 $1.541 $1.658
GAAP Diluted EPS ($)$1.10 $1.17 $1.42
Non-GAAP Diluted EPS ($)$1.58 $1.56 $1.87
Gross Margin - GAAP (%)71.1% 71.3% 71.0%
Operating Margin - GAAP (%)19.5% 18.3% 20.8%
Operating Margin - Non-GAAP (%)26.8% 25.9% 28.6%

Segment revenues and margins:

Segment MetricQ2 FY24Q1 FY25Q2 FY25
Hybrid Cloud Segment Net Revenues ($USD Billions)$1.408 $1.382 $1.490
Public Cloud Segment Net Revenues ($USD Billions)$0.154 $0.159 $0.168
Product Revenues ($USD Billions)$0.706 $0.669 $0.768
Support Revenues ($USD Billions)$0.623 $0.631 $0.635
Public Cloud Segment Gross Margin (%)66.2% 71.1% 73.8%
Product Gross Margin - GAAP (%)61.0% 59.9% 60.3%

Key KPIs:

KPIQ2 FY24Q1 FY25Q2 FY25
Billings ($USD Billions)$1.454 $1.449 $1.586
All-Flash Array ARR ($USD Billions)$3.2 $3.4 $3.8
Cash from Operations ($USD Millions)$135 $341 $105
Free Cash Flow ($USD Millions)$97 $300 $60
DSO (days)46 40 48
Public Cloud Revenue ($USD Millions)154 159 168

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net RevenuesFY25$6.480B–$6.680B $6.540B–$6.740B Raised
Consolidated Gross Margin (GAAP)FY2570%–71% 70%–71% Maintained
Consolidated Gross Margin (Non-GAAP)FY2571%–72% 71%–72% Maintained
Operating Margin (GAAP)FY2520%–21% 21%–21.5% Raised
Operating Margin (Non-GAAP)FY2527%–28% 28%–28.5% Raised
EPS (GAAP)FY25$5.17–$5.37 $5.48–$5.68 Raised
EPS (Non-GAAP)FY25$7.00–$7.20 $7.20–$7.40 Raised
Net RevenuesQ3 FY25N/A$1.610B–$1.760B New
EPS (GAAP)Q3 FY25N/A$1.41–$1.51 New
EPS (Non-GAAP)Q3 FY25N/A$1.85–$1.95 New
Dividend per shareNext payment$0.52 (paid Oct 23, 2024) $0.52 (to be paid Jan 22, 2025) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
AI/technology initiativesQ4: expanding AI portfolio, NVIDIA partnerships, enterprise AI use cases ; Q1: introduced AFF A-Series; AI toolkits across clouds >100 AI and data lake wins; on-prem focus; Google Distributed Cloud for regulated sectors Accelerating
Public cloud marginsQ4: public cloud GM ~68% ; Q1: segment GM 71.1% Segment GM 73.8%; CFO targets exiting FY25 at lower end of 75–80% Improving
SSD prebuys, inventoryQ4: secured SSD supply; prebuy strategy ; Q1: DSO/DPO trending Upfront SSD payments suppressed FCF; inventory turns fell to 6x; fewer prebuys expected going forward Near-term headwind, easing H2
VMware/ macroQ4: optimization, displacing hyperconverged ; Q1: macro cautious optimism Customers optimizing Broadcom VMware estate; some move to alternative hypervisors and cloud Opportunity
Keystone (STaaS)Q4: TCV doubled to ~$150M; triple-digit growth Professional services +10% YoY, largely Keystone; unbilled RPO ~$330M QoQ ↑11% Expanding
Public sector/regulatoryQ1: expanded Google collaboration for Distributed Cloud Public sector strong; Carahsoft distribution agreement; regulated sector wins Building

Management Commentary

  • CEO: “Our strong Q2 performance was driven by another record-breaking quarter in all-flash storage and strong performance in first party and marketplace cloud storage services… enabled us to outgrow the market and take share from competitors” .
  • CFO: “Gross margin leverage and operating discipline drove operating margin of 29%… EPS of $1.87 was above the high end of our guidance… we are raising our fiscal year ‘25 revenue and EPS expectations” .

Q&A Highlights

  • AI timing and scope: AI activity concentrated in centers of excellence; large-scale inferencing more likely in second half of next year; >100 wins across public sector, manufacturing, financial services, healthcare/life sciences .
  • All-flash durability and share: Four consecutive quarters of high-teens/20%+ growth; value proposition driven by unified OS, hybrid multi-cloud, security; rapid product refresh (A-Series, ASA, FAS) supports durability .
  • SSD prebuys: Majority of inventory increase from prebuys; no further prebuys expected this fiscal year; early signs of NAND softening; covered FY25 demand .
  • VMware impact: Customers optimizing Broadcom VMware estates (moving storage off HCI to external arrays), exploring alternative hypervisors, and migrating to cloud; NetApp solutions benefiting in all paths .
  • Keystone accounting and trajectory: Reported in professional services; growth expected to continue; no churn observed; strong customer feedback .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable at the time of this analysis due to data access limits; therefore, comparisons vs consensus are not shown.
  • Versus company guidance: Revenue landed toward the high end of Q2 guidance ($1.565B–$1.715B), and non-GAAP EPS of $1.87 exceeded the $1.73–$1.83 range; management raised FY25 revenue and EPS guidance .

Key Takeaways for Investors

  • Non-GAAP EPS beat and raised FY25 guidance are likely positive catalysts; execution is delivering double-digit EPS growth at the midpoint of updated FY25 [$7.20–$7.40] .
  • Flash leadership is compounding: all-flash ARR at $3.8B (+19% YoY) with refreshed A-Series/ASA portfolios and strong share gains; durable tailwinds should support mid/high-50s product GM despite NAND cost pressures .
  • Cloud inflection: first-party/marketplace services growing ~43% YoY; public cloud segment margins trending toward the 75–80% long-term target by FY25 exit .
  • AI pipeline broadening (>100 wins) across regulated and enterprise verticals; NetApp’s role in Google Distributed Cloud and NVIDIA ecosystem positions it to monetize hybrid GenAI workloads over the next year .
  • Near-term FCF headwinds (SSD prebuys) should ease in H2; management expects stronger second-half cash generation and continued shareholder returns (dividends, buybacks) .
  • VMware/Broadcom transitions create displacement opportunities for external storage and cloud migrations where NetApp’s hybrid capabilities are advantaged .
  • Keystone STaaS momentum (no churn, rising unbilled RPO) supports recurring revenue mix and margin stability, reported within professional services .

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