Why NetApp Inc. (NASDAQ: NTAP) stock is under pressure

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NetApp Inc. (NASDAQ: NTAP) stock lost over 2.8% in the pre-market session of May 28th, 2020 (Source: Google finance) after the company posted mixed results for the fourth quarter of FY 20. During the quarter, the company’s two key strategic focus areas, the Storage business, which is powered by the industry-leading file, block and object software, and Cloud Data Services, both performed considerably better than the rest of the business. The company’s all-flash revenue of $656 million was down 3% year-over-year.

Cloud Data Services has posted $111 million in ARR, growing 113% year-over-year, and an impressive 34% sequentially. Total product revenue of $793 million, which fell approximately 21% year-over-year. ELA revenue in Q4 was less than $10 million. Software maintenance and hardware maintenance revenue was up nearly 4% year-over-year to $546 million. These two recurring revenue lines comprise about 40% of total net revenue. The company has ended fourth quarter with $3.7 billion in deferred revenue, which represents an increase of 1% year-over-year. The company posted the gross margin of 68% was up nearly 3 points year-over-year. Product gross margin was 56.4%,  which represents an increase of over 1 point year-over-year. The year-over-year improvement was mainly on the back of an increase in all-flash product mix. The combination of software and hardware maintenance and other services continues to be an incredibly profitable business for the company, with gross margin of 83.2%, which was up 1 point year-over-year. The margin expansion was mainly due to the continued leverage in the support model.

NTAP in the fourth quarter of FY 20 has reported the adjusted earnings per share of $1.19, beating the analysts’ estimates for the adjusted earnings per share of $1.10, according to Factset. The company had reported 12 percent fall in the adjusted revenue to $1.4 billion in the fourth quarter of FY 20, missing the analysts’ estimates for revenue of $1.41 billion.

Additionally, during Q4, the company had repurchased 3.3 million shares at an average price of $49.50 for a total of $161 million. As of the end of Q4, the company had $478 million remaining on the original $4 billion buyback authorization. During the quarter, the company had paid out $105 million in cash dividends. The company intends to maintain the cash dividend of $0.48 per share in Q1.

The company expects Q1 net revenues to range between $1.09 billion and $1.24 billion, which at the midpoint implies a 6% fall in revenues year-over-year, including 1.5 points of currency headwind.

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