How Is NetApp Likely To Grow In The Next Two Years?
NetApp (NASDAQ: NTAP) had a strong 2018, as both its revenue and adjusted earnings per share saw growth. Furthermore, NetApp’s stock price has gained close to 15% since the last earnings announcement, and we expect the company to gain further momentum given its strong product performance and the consumer shift towards all-flash storage products. We expect NetApp’s top line to grow at a CAGR of 5.5% over the next two years. You can see more on our interactive dashboard for NetApp’s key sources of value. You can adjust any of the company’s key drivers to see the impact of changes in the overall revenues, earnings, and valuation.
Strategic Products To Drive Top Line; Hardware Maintenance Likely To Decline
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In the last fiscal year, NetApp witnessed solid revenue growth, driven primarily by strategic products. Solid demand for the company’s all-flash storage product line led to strong revenue growth, which we expect will continue in the upcoming year. The explosive growth in IoT (Internet of Things) will likely generate demand for storage, and NetApp is right in the thick of this projected growth. Meanwhile, demand for all-flash array (AFA) is growing as enterprises are looking to upgrade their data centers to fulfill the requirements of modern-day business applications that require higher speed and responsiveness. The company’s decision to transition to flash storage arrays has led to some momentum, with this part of the business seeing around 43% year-on-year growth last quarter. As a result of increased product sales, NetApp’s share in the external enterprise storage systems market has been on the rise, per data compiled by IDC. Given that the company has been gaining traction among its customers with the help of solutions such as Data Fabric and ONTAP Data Management Software, we expect further growth in NetApp’s market share. Meanwhile, the company has also launched AFF800, the first NVMe platform that will support high-density 30-terabyte SSDs, which will likely generate interest in the enterprise storage market.
Moreover, the deal to power Microsoft’s Azure Enterprise NFS service and the launch of NFLEX converged infrastructure with Fujitsu will further boost the top line. The company has also recently landed a high-profile deal with Google to integrate its services into the Google Cloud platform. The success of flash products has also impacted the Storage Area Network (SAN) and converged infrastructure markets positively. The company is averaging two SAN displacements per day in 2018, which has resulted in new customer acquisitions and wallet share gains with existing customers. Furthermore, the company is increasingly gaining traction in the HCI market, and we expect this to continue in the future. While the company’s strategic products should continue to drive growth, offsetting pressure on the Hardware maintenance business. Pricing pressure and lower contract renewal rates will continue to hamper that business’ growth.
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