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Why NetApp Stock despite Its Q4 2018 Earnings Beat

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Revenue rises 7% in fiscal 2018

In the previous part of this series, we saw that NetApp’s (NTAP) revenue rose 10% YoY (year-over-year) in fiscal Q4 2018 and 7% YoY in fiscal 2018, beating its guidance. The company’s solid demand, key customer wins, and expansion across regions boosted its revenue.

NetApp stated that its customer acquisitions have continued to accelerate and the company is now viewed as a critical strategic partner for data-driven digital transformation. In fiscal 2018, NetApp successfully pivoted towards high growth areas and improved its operational efficiency, expanding its profit margins.

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As a result, NetApp achieved revenue and profitability growth in fiscal Q4 2018 and fiscal 2018. Its product revenue rose 15% YoY, while its product gross margins expanded by 350 basis points. NetApp experienced strong revenue growth from strategic solutions while revenue from mature solutions stabilized in fiscal 2018. So why did NetApp stock fall?

Stock falls ~4% in after-hours trading on May 23

NetApp stock fell 0.3% during trading hours on May 23, and 4% more in after-hours trading. This decline may have been due to NetApp’s guidance not aligning with analysts’ estimates.

NetApp stated that it expects non-GAAP EPS of $0.76–$0.82 in Q1 2019 (ending in July), and revenue of $1.37–$1.47 billion. In comparison, analysts expect the company to post EPS of $0.78 and revenue of $1.42 billion.

Analysts expect NetApp’s revenue to rise ~7% YoY in Q1 2019. The average revenue growth estimates for peers Pure Storage (PSTG), IBM (IBM), Western Digital (WDC), and Seagate (STX) are 33.2%, 3.5%, 6%, and 3%, respectively, in the next fiscal quarter.

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