How Is NetApp Improving Profit Margins?


Nov. 10 2017, Updated 1:35 p.m. ET

NetApp’s profit margins

Analysts expect NetApp (NTAP) to post a non-GAAP (generally accepted accounting principles) net margin of 11.6% with an operating margin of 18.6% in fiscal 2018. The firm reported a net margin of 9.2% with an operating margin of 17.2% in fiscal 2017.

Profit margins are, however, expected to rise further in 2019 and 2020, driven by NetApp’s improvement in operational efficiency. While analysts expect NetApp’s revenues to rise over 2% in fiscal 2019, its net margin is expected to rise to 12.4% with an operating margin of 19%. While NetApp’s operating margin is estimated to rise to 19.9% in 2020, its net margin might fall marginally to 11.4% compared with its revenue growth of 1% YoY.

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NetApp’s net margin of 4.1% and operating margin of 13.5% in fiscal 2016 was the company’s lowest in the last five years. Peers Western Digital (WDC), IBM (IBM), Seagate (STX), and Pure Storage had operating margins of 20.6%, 16.4%, 13.8%, and -13.2%, respectively, at the end of their last reported fiscal years.

NetApp reduced its cost base by $400 million in fiscal 2017

NetApp’s improved profit margins have been driven by the firm’s transformational efforts, which have led to an increase in operational efficiency. While NetApp’s revenue is estimated to rise over 2.2% in fiscal 2018, its EPS (earnings per share) is expected to rise 15% YoY (year-over-year).

Last fiscal year, NetApp’s operating profit rose 26% YoY to $950 million from $750 million in 2016 compared to a 0.5% fall in revenue. In comparison, net income rose 21% YoY in fiscal 2017.


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