NetApp NTAP is slated to report first-quarter fiscal 2021 earnings on Aug 26.

The company anticipates non-GAAP earnings for first-quarter fiscal 2021 between 36 cents and 44 cents per share. The Zacks Consensus Estimate for earnings stands at 41 cents, suggesting a decline of 36.9% from the year-ago reported figure. Notably, the figure has remained stable in the past 30 days.

Moreover, net revenues are anticipated in the range of $1.09-$1.24 billion. The consensus for fiscal first-quarter revenues is pegged at $1.15 billion, indicating a decline of 6.9% from the prior-year quarter.

Notably, the company beat estimates in three of the trailing four quarters and missed the same once, the average surprise being 10.48%.

Factors to Note

Broader weakness in macroeconomic environment led by coronavirus crisis has been compelling enterprises to trim capital expenditure, which is expected to have affected NetApp’s storage business in the to-be reported quarter.

For the fiscal first quarter, the Zacks Consensus Estimate for Product revenues and Hardware Maintenance & Other Services revenues is pegged at $632 million and $333 million, indicating a year-over-year decline of 1.9% and 2.6%, respectively.

Nevertheless, improvement in NAND flash pricing owing to coronavirus-led supply chain constraints is likely to have driven revenue growth, which in turn is likely to have favored Product gross margin performance in the fiscal first quarter.
 

Further, incremental adoption of Microsoft Azure NetApp Files is expected to have bolstered Cloud Data Services business recurring revenues in the fiscal first quarter. Notably, the metric was $111 million in the last reported quarter, up 113% on a year-over-year basis. Also, in the fiscal fourth quarter, Cloud Data Services customer count exceeded 3,500, which more than doubled on a year-over-year basis.

Also, increased momentum of the company’s HCI (or hyper converged infrastructure) and cloud partnerships with Amazon’s Amazon Web Services, VMware VMW, and Alphabet’s GOOGL Google Cloud may have contributed to revenue run rate for Cloud Data and Private Cloud business in the to-be reported quarter.

For the fiscal first quarter, the Zacks Consensus Estimate for Software Maintenance revenues is pegged at $264 million, indicating a year-over-year growth of 5.6%.

Moreover, coronavirus crisis has triggered work-from-home wave that has led to increasing adoption of cloud-based storage, which in turn is likely to have driven adoption of NetApp’s hybrid multi-cloud offerings, cloud data services and private cloud offerings. It is expected to get reflected in the fiscal first-quarter revenues.

Acquisitions in Q1 Remain Noteworthy

During the quarter under review, NetApp concluded acquisition of Israel-based cloud services startup –– Spot. The deal is expected to aid NetApp to address the growing demand for efficient and cost-effective cloud infrastructure and boost customer experience. (Read More: NetApp Signs Deal to Purchase Cloud Startup Spot)

Moreover, the company announced acquisition of CloudJumper — a cloud software company offering virtual desktop infrastructure (VDI) solutions and remote desktop services (RDS), which aids enterprises to accelerate public cloud deployments for work-from-home setup, branch offices and enterprises.

Growing investments on product development by means of acquisitions bode well for the long term. However, increasing expenditure amid stiff competition from fellow storage peers including Pure Storage PSTG, is likely to have limited margin expansion in the fiscal first quarter.

Currently, NetApp carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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