NTAP • 10-K • FY 2025 • Positive

NetApp Accelerates Cloud Transition as On-Premise Storage Revenue Stabilizes

June 09, 2025 • 1 min read

TL;DR

NetApp demonstrated resilient performance with revenue growing 4.2% YoY to $6.7B, driven by 29% growth in public cloud services reaching $584M ARR. On-premise storage revenue stabilized at -2% decline vs -8% prior year, suggesting successful portfolio transformation. Gross margins expanded 180bps to 68.4% through improved product mix and cloud scale. Management's strategic pivot to hybrid cloud architecture positions the company for sustainable growth in the $50B+ storage and data services marke

Financial Performance Overview: Revenue reached $6.7B (+4.2% YoY) with cloud ARR accelerating to $584M (+29% YoY). Hybrid cloud segment grew 15% YoY to represent 35% of total revenue. Gross margins expanded 180bps to 68.4% on improved product mix, while operating margins reached 23.5% (+90bps YoY). Free cash flow generation remained strong at $1.2B with 95% conversion rate, enabling $800M in share repurchases and maintained dividend.
Strategic Initiatives and Operational Changes: Management accelerated cloud-native portfolio expansion through $450M acquisition of Spot and increased R&D investment to 12.5% of revenue (+50bps YoY). New hybrid cloud offerings drove 42% growth in software and recurring revenue. Go-to-market transformation included 25% expansion of cloud-focused sales capacity and deeper hyperscaler partnerships. Early success visible in 95% retention rate for cloud customers.
Market Position and Competitive Dynamics: NetApp maintained #2 position in enterprise storage with 15.8% market share, while establishing leadership in cloud data services with 35% share of cloud-native file services. Customer count grew 28% YoY to over 5,000 cloud customers. Primary competitive pressure from Dell/EMC in traditional storage offset by first-mover advantage in cloud integration. Strategic partnerships with major clouds expanded total addressable market to $50B+.
Operational Efficiency and Profitability: Gross margin expansion to 68.4% driven by software mix shift and improved cloud unit economics reaching scale. Operating expenses grew slower than revenue at 2.5% YoY through automation and operational leverage. Cloud gross margins improved 600bps YoY to 72% as platform reached scale. Management targets 25% operating margins by FY26 through continued mix shift and efficiency gains.
Growth Catalysts and Material Risks: Near-term growth driven by cloud adoption acceleration, AI/ML workload expansion requiring high-performance storage, and hybrid architecture demand. Key risks include cloud provider competition, macro IT spending environment, and supply chain constraints. Management expects cloud ARR to reach $1B+ by FY26 with overall revenue growth accelerating to 6-8% range.

Revenue

$6.7B (+4.2% YoY) with cloud services growing 29% to $584M ARR

Rd Spend

$838M ( YoY) representing of revenue

↑ +8.5%

Net Income

$1.1B ( YoY) with net margin

↑ +15%

Gross Margin

(+180bps YoY) driven by improved product mix

↑ 68.4%

Free Cash Flow

$1.2B ( YoY) with conversion rate

↑ +5%

Operating Margin

(+90bps YoY) with continued efficiency gains

↑ 23.5%

Growth Indicators

$584M cloud ARR ( YoY)

↑ +29%

Customer Count ↑5,000+ cloud customers (+28% YoY)

Retention Metrics ↑95% cloud customer retention rate

Key Risks

Cloud provider competition in storage services threatening market share
Macro IT spending uncertainty impacting customer purchase timing
Supply chain constraints affecting hardware costs and availability
Customer concentration with top 10 representing 35% of revenue

Key Opportunities

$50B+ TAM across storage, data services, and cloud optimization
AI/ML workload expansion driving high-performance storage demand
Geographic expansion in emerging markets (15% current revenue)
M&A opportunities in cloud-native technologies

Bottom Line

NetApp's FY25 performance demonstrates successful execution of hybrid cloud strategy with accelerating growth and expanding margins. Cloud momentum combined with stabilizing traditional storage business creates foundation for sustainable growth. Key metrics including cloud ARR growth, customer additions, and retention rates validate product-market fit. Management's balanced approach to investment and operational efficiency positions for continued margin expansion. While competitive and macro risks remain, NetApp's hybrid cloud leadership and enterprise relationships provide strong differentiation. Monitoring cloud ARR trajectory and traditional storage stabilization will be critical indicators for FY26 performance.