Analyst(s): Camberley Bates, Krista Case
Publication Date: November 26, 2024
NetApp’s second quarter of fiscal year 2025 showcased strong revenue growth, with a 6% year-over-year increase to $1.66 billion, fueled by the adoption of all-flash storage and hybrid cloud solutions. Operational efficiency remained a highlight, with record non-GAAP operating margins of 29% and $406 million returned to shareholders. While first party cloud offerings showed robust growth the remaining public cloud revenue growth signals room for optimization in an otherwise positive outlook.
What is Covered in this Article:
- Key financial highlights, including revenue, margins, and earnings per share
- Strategic wins in hybrid cloud and all-flash storage adoption
- The role of product innovations and partnerships in driving growth
- Opportunity to further accelerate public cloud performance
- Macroeconomic considerations
- The company’s outlook for Q3 FY2025
The News: NetApp reported strong financial results for Q2 FY2025, with revenue reaching $1.66 billion, marking a 6% year-over-year growth. Key drivers included a 19% increase in the annualized revenue run rate of all-flash arrays to $3.8 billion and a 43% surge in first-party and marketplace cloud storage revenues. Non-GAAP operating margins hit a record 29%, supported by disciplined cost management. Additionally, NetApp returned $406 million to shareholders through share buybacks and dividends.
The company made significant strides in their product roadmap, unveiling new all-flash and hybrid flash storage solutions, AI integrations with NVIDIA, and enhancements to cyber resilience capabilities. Partnerships with AWS, Google Cloud, and VMware further strengthened NetApp’s position in the hybrid and multicloud space.
NetApp’s Q2 FY2025: Innovation Drives Growth in Data Infrastructure
Analyst Take: NetApp’s Q2 FY2025 performance underscores the company’s ability to innovate and maintain a strong position in a competitive data infrastructure market. Growth in hybrid cloud and all-flash storage revenues demonstrates its success in aligning products with evolving enterprise needs. However, the slower growth in overall public cloud revenues, despite the jump in sales for the first-party data infrastructure cloud offerings, indicates an area requiring strategic focus to fully capitalize on cloud operations adoption trends.
NetApp’s investments in AI, mainly through partnerships with NVIDIA, are developing, and expect their investments in technology to unlock significant opportunities in enterprise solutions. To sustain its momentum and financial success, NetApp will need to continue managing their disciplined cost management in an increasingly competitive market for both on-premises and in the cloud.
Revenue Growth Supported by Strategic Product Adoption
With reported revenues of $1.66 billion for Q2 FY2025, a 6% increase compared to the same period in FY2024, this uptick was driven by the hybrid cloud segment, which grew by 6% year-over-year to reach $1.49 billion. The public cloud segment, which includes first-party data infrastructure and marketplace sales for data and CloudOps offerings, demonstrated moderate growth, with revenues increasing from $154 million to $168 million.
The all-flash array annualized revenue run rate hit $3.8 billion, which represented 19% year-over-year growth including success with their ASA- SAN offering providing a head-to-head competition for block storage and the traction expected to come from their QLC C-series. It is expected clients with hybrid devices will migrate to the C-series, bringing performance benefits.
The first-party and marketplace cloud data infrastructure services of 43% revenue growth,is very heartening and deserves to be closely watched as to the use cases for the uptick. We expect to see adoption for AI workloads as well as core transactional applications.
Cloud Strategy: A Competitive Differentiator
NetApp’s public cloud segment’s growth, while moderate compared to hybrid cloud, showcases NetApp’s foothold in integrating advanced cloud capabilities into its ecosystem. Partnerships with major cloud providers, including AWS and Google Cloud, have played a critical role. Notably, the expansion of NetApp’s strategic collaboration with AWS and Azure aims to simplify generative AI initiatives.
Product Innovation Driving Market Relevance
A defining feature of Q2 FY2025 was NetApp’s continued investment in product innovation. The launch of the NetApp ASA A-Series storage systems introduced a compelling mix of high-end capabilities, affordability, and simplicity tailored for enterprise environments. Concurrently, enhancements to hybrid flash arrays delivered secure, high-performance backup and cyber resilience.
The company’s artificial intelligence (AI) initiatives further highlight its commitment to forward-looking solutions. At NetApp Insight, they rolled out collaborations with NVIDIA, including DGX SuperPOD Storage Certification for ONTAP, aimed to streamline AI data pipelines across cloud and on-premises platforms. These innovations align with enterprise priorities around retrieval-augmented generation (RAG) and generative AI, paving the way for future growth in AI-driven markets.
Enhancing Customer Value Through Partnerships
NetApp strengthened its partner ecosystem during the quarter, enabling broader adoption of its solutions. Notably, NetApp’s expansion of partnerships with AWS and Google Cloud illustrates a focus on aligning its data management capabilities with hyperscaler environments. These collaborations are critical as enterprises increasingly rely on hybrid and multicloud architectures for digital transformations.
Recognitions Reinforcing Industry Leadership
Despite the positive results, certain areas pose challenges for NetApp. Public cloud revenue growth, while present, lags the rapid adoption seen in other segments, suggesting the need for further optimization of its cloud offerings. Additionally, macroeconomic uncertainties, such as inflation and fluctuating interest rates, could impact enterprise IT spending.
For Q3 FY2025, NetApp projects revenues between $1.61 billion and $1.76 billion and GAAP EPS of $1.41 to $1.51. These estimates reflect cautious optimism as the company navigates potential headwinds.
In Summary
NetApp’s Q2 FY2025 results highlight a company leveraging innovation and strategic partnerships to drive growth and shareholder value. With solid performance in all-flash arrays, robust operational margins, and a focus on AI and cloud solutions, NetApp demonstrates its ability to adapt to shifting market dynamics. However, careful attention to challenges in the public cloud segment and broader economic conditions will be essential as it moves forward.
See the complete press release of NetApp’s Q2 FY2025 earnings on the NetApp website.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
NetApp Q1 FY25 Financial Results Showcase Strong Growth in Cloud and Flash Storage Segments
Six Five Webcast NetApp INSIGHT: Driving Innovation for Customer Success
NetApp Intelligent Data Infrastructure and Latest Releases for the Cloud and AI
Author Information
Camberley brings over 25 years of executive experience leading sales and marketing teams at Fortune 500 firms. Before joining The Futurum Group, she led the Evaluator Group, an information technology analyst firm as Managing Director.
Her career has spanned all elements of sales and marketing including a 360-degree view of addressing challenges and delivering solutions was achieved from crossing the boundary of sales and channel engagement with large enterprise vendors and her own 100-person IT services firm.
Camberley has provided Global 250 startups with go-to-market strategies, creating a new market category “MAID” as Vice President of Marketing at COPAN and led a worldwide marketing team including channels as a VP at VERITAS. At GE Access, a $2B distribution company, she served as VP of a new division and succeeded in growing the company from $14 to $500 million and built a successful 100-person IT services firm. Camberley began her career at IBM in sales and management.
She holds a Bachelor of Science in International Business from California State University – Long Beach and executive certificates from Wellesley and Wharton School of Business.
With a focus on data security, protection, and management, Krista has a particular focus on how these strategies play out in multi-cloud environments. She brings approximately 15 years of experience providing research and advisory services and creating thought leadership content. Her vantage point spans technology and vendor portfolio developments; customer buying behavior trends; and vendor ecosystems, go-to-market positioning, and business models. Her work has appeared in major publications including eWeek, TechTarget and The Register.
Prior to joining The Futurum Group, Krista led the data protection practice for Evaluator Group and the data center practice of analyst firm Technology Business Research. She also created articles, product analyses, and blogs on all things storage and data protection and management for analyst firm Storage Switzerland and led market intelligence initiatives for media company TechTarget.
