NetApp (NTAP) shares plunged on Friday after some unforced errors saw the data infrastructure and storage company deliver weaker-than-expected Fiscal third-quarter revenue. Although revenues rose 2% to $1.64 billion, it was a mixed performance across the company. Product revenue rose by 1%, while support revenue fell by 2%. Public cloud showed a more robust 15% increase but overall revenues were a little short of expectations, $44 million below the mid-point of guidance and short of the $1.7 billion expected on Wall Street. Third quarter earnings per share of $1.91 was in-line with guidance.
CEO George Kurian said bluntly that the company “did not perform to our standards in Q3,” adding that while revenues were within the guidance range, management was “not satisfied with our top line performance.”
Kurian indicated that there was some “inconsistent execution” which resulted in some deals slipping out of Q3, leading to some changes including tighter controls on closing plans. “We believe the actions we’ve undertaken to improve sales execution will get us back on track in Q4,” he added.
NTAP Lowers Guidance
For the current quarter NTAP anticipates revenue of $1.73 billion, missing analyst expectations for $1.76 billion. Full year revenue guidance was also reduced slightly due to the weak revenue performance in Q3, FX headwinds and the divestiture of its Spot and Cloudcheckr businesses.
Operating cash flow was $385 million in Q3 compared to $484 million a year ago, and free cash flow was $338 million compared to $448 million a year ago. Lower year-over-year cash flow results for Q3 were primarily driven by lower collections and higher cash outflows for previously secured strategic SSD purchases, the company said in remarks accompanying the earnings update.
For Q4 the company expects revenues in a range between $1.65 and $1.80 billion, which at the midpoint implies 3% growth year-over-year. EPS is expected to be in the range of $1.84 to $1.94.
Analysts Lower Price Targets
Susquehanna lowered the firm’s price target on NetApp to $120 from $130 and kept a Neutral rating on the shares, citing a lack of execution in closing deals in the quarter. Barclays lowered its NTAP price target to $115 from $132 and maintained an Equal Weight (Hold) rating on the shares. Wedbush analyst Matt Bryson lowered his price target on NetApp to $110 from $120 and kept a Neutral rating on the shares
Is NTAP a Good Stock to Buy?
Based on 7 Wall Street analysts offering 12-month price targets for NetApp in the last three months, the consensus view is a Hold. The average NTAP price target is $138.17, implying about 33% upside, though there could be further revisions to price targets by analysts.
