NetApp (NTAP) Stock Plunges 9% Despite Crushing Q1 Earnings Expectations

Key Takeaways

• NetApp delivered Q1 fiscal 2027 sales of $2.03 billion, representing a 30% year-over-year increase and surpassing analyst projections of $1.84 billion
• The company posted adjusted earnings per share of $2.58, significantly exceeding the consensus estimate of $2.11
• NTAP shares tumbled 8.92% in extended trading to $164.64 following the earnings release
• Operating cash flow declined 25% compared to the prior year, while free cash flow dropped 35%
• The company increased its fiscal 2027 annual revenue forecast to a range of $7.98 billion to $8.23 billion

NetApp (NTAP) delivered its strongest fiscal year opening on Wednesday, announcing first-quarter sales of $2.03 billion alongside adjusted earnings per share of $2.58. While both figures substantially exceeded analyst projections, shares nonetheless experienced a significant decline.

NetApp, Inc., NTAP

Shares of NTAP plummeted 8.92% during after-hours trading to $164.64, following a 1.35% decline in the regular session to $180.68. The after-hours movement represented approximately a 10% decrease from the closing price before earnings.

The company’s revenue expanded 30% versus the comparable year-ago period, or 26% when adjusting for an additional week included in the current quarter. Adjusted earnings per share surged 66% year-over-year, demonstrating robust operational leverage. The earnings beat of $0.47 represented a 22% upside surprise relative to Wall Street’s consensus.

The all-flash array segment generated $1.31 billion in revenue, marking a 47% year-over-year increase. Hybrid cloud sales climbed 30% to $1.82 billion, while public cloud revenue advanced 28% to $206 million. The company disclosed it secured approximately 350 deals related to artificial intelligence and data lake modernization initiatives throughout the quarter.

Operating income jumped 61% to $645 million. The operating margin expanded to 31.9%, representing a 6.1 percentage point improvement compared to the same period last year.

Factors Behind the Share Price Decline

While the headline figures impressed, certain metrics within the financial report concerned market participants. Operating cash flow contracted 25% year-over-year to $503 million, with free cash flow experiencing a 35% decline to $401 million.

Inventory levels increased from $198 million to $375 million, with turnover rates running at under half the velocity recorded in the prior year period. Restructuring expenses ballooned to $56 million from merely $2 million during the comparable quarter.

Company leadership acknowledged that a portion of the quarter’s robust performance stemmed from the additional week and from expedited purchasing activity by a limited number of major clients. This disclosure may have sparked concerns regarding the sustainability of the current growth trajectory.

Forward-Looking Projections

NetApp elevated its fiscal 2027 annual revenue projection to a band of $7.975 billion to $8.225 billion. The midpoint of $8.1 billion suggests approximately 17% year-over-year expansion and marks a $650 million boost from the previous forecast.

For the second quarter, management projects revenue of $2.1 billion with a variance of plus or minus $75 million, coupled with adjusted earnings per share between $2.54 and $2.64. The company anticipates gross margins will range from 67% to 68%.

Full-year adjusted EPS guidance was revised upward to a range of $9.73 to $10.03, compared with the earlier projection of $8.70 to $9.00.

Chief Executive Officer George Kurian characterized the results as “a stellar start to the year,” emphasizing that the company surpassed its internal Q1 projections across all performance indicators. Chief Financial Officer Wissam Jabre highlighted that earnings per share expanded at more than twice the revenue growth rate, underscoring operational efficiency gains.

NTAP’s 52-week trading range spans from $93.69 to $209.06. Despite the after-hours selloff, the stock continues trading substantially above its annual low point.

The company is presently incorporating two recently completed acquisitions, DataPelago and JetStream, into its operations. Management reported returning $302 million to shareholders during the quarter through $200 million in stock repurchases and $102 million in dividend payments.