As netapp guidance comes in weak again, shares dip and then recover – siliconangle database recovery pending

The data storage firm posted profits after certain costs such as stock compensation of $288 million, or $1.05 per share, on revenue of $1.64 billion, up 11 percent from a year ago. Wall Street analysts on average had forecast earnings of $1.01 per share on $1.6 billion in revenue.

“The fourth quarter marked a great finish to a strong year,” Chief Executive George Kurian (pictured) said in prepared remarks. “We successfully pivoted to the growth areas of the market, expanded our opportunity with HCI [hyperconverged infrastructure] and new cloud partnerships, and improved operational discipline to deliver sustained and profitable growth.”

However, just like in its third-quarter earnings, investors recoiled on the company’s lower-than-expected guidance, sending its share price down almost 4.5 percent in after-hours trading.

For the first quarter of its fiscal 2019, NetApp forecast earnings after certain costs of between 76 and 82 cents per share, on expected revenue of $1.365 billion to $1.465 billion. Wall Street was hoping for more, forecasting earnings in the range of 78 cents a share on revenue of $1.42 billion.

“There was a lot of good news in NetApp’s April quarter — product growth accelerated maintained double-digit growth on tough compare, product margins recovered after a January quarter dip, and deferred revenue growth re-accelerated,” Morgan Stanley analyst Katy Huberty wrote in a note to clients. “However, the bar was high and an in-line guide and low quality earnings beat (interest and tax drove upside) will keep valuation in check, especially after a 15 percent move since last earnings report.”

Still, investors appeared to wake up in a better mood on Thursday, as shares ended up rising nearly 2 percent, to $68.08. Indeed, NetApp’s poor guidance shouldn’t have been a surprise. Following its third-quarter earnings report in February, analysts warned that a reduction in its gross margins could have a knock-on effect on its profitability. “Gross margin coming in lighter could suggest that competitive intensity might return,” Barclays analyst Mark Moskowitz said at the time. What’s more, NetApp competitor Pure Storage ran into a similar situation earlier this week in its earnings report.

“Given how brutally the market treats companies that miss their earnings forecasts, tempering overachievement with cautiousness may simply become business as usual among storage players,” said Charles King, president and principal analyst at Pund-IT Inc. “That sets-up a roller coaster ride for investors, but it’s preferable to a missed earnings crash.”

NetApp, which sells data storage networking and management solutions, has in previous months been undergoing a product transition in line with industry trends toward chip-based flash storage and software-defined networking. Recent developments include bringing its network-attached storage service to Google Inc.’s cloud platform and the launch of an all-flash array NetApp claims is the world’s fastest. The company has also been exploring potential use cases for blockchain within its own platforms and services.

These investments in product innovation are likely to bode well for NetApp, though it remains to be seen how long they will translate into improved profitability, said Holger Mueller, principal analyst and vice president of Constellation Research Inc.

“Things are looking up for Netapp and it’s good to see product revenue, profits and especially new innovation such as the all-flash array grow,” Mueller said. “Now we have to see how the next quarters will pan out from this level, which have tougher comparisons ahead.” Image: NetApp