Bert, on NetApp (PSTG competitor)

NetApp: Shares For Sale $NTAP

Of interest to many here on the board…especially me now that PSTG is an 8.3% position (not stuck on that percentage…debating lightening it prior to earnings, but 'twas cheaper commisions-wise to let options exercise). I may stick to my whole PSTG position, but might not be wise prior to really knowing more about the company and overall flash storage landscape. Seeing Arista and NVidia listed in a fair amount of Pure’s materials doesn’t seem like a negative, imo (as those combine for 36.4% for me).

<<<Seeing Arista and NVidia listed in a fair amount of Pure’s materials doesn’t seem like a negative, imo>>>

In Arista’s earning call (the disastrous one! :(, at least for now) Arista mentioned working with both storage companies and Nvidia on AI implementations. As we know there is a connection between Arista and PSTG. However, Nvidia was specifically named, but PSTG was not in that regard. I think PSTG is still the new up and coming niche player trying to become mainstream, but AI is not yet really mainstream yet either, no matter how fast it has grown.


Bert mentions an upcoming NetApp analyst day on April 5th as a potential catalyst for their share price.
Also, since Bert included a few of my newly dubbed favorite value metrics (…) in his article, I guess I’ll paste those sections here:

At Friday’s closing share price, the company has a market capitalization of $15.1 billion. The company has a net cash balance of $3.5 billion so its enterprise value is $11.6 billion. I think that the company will be able to achieve forward 12-month revenues of more than $6.5 billion. So, that is an EV/S of just 1.8X. Given the consistent growth of the past several quarters, that is an exceptionally low EV/S ratio.

I believe that the company can achieve non-GAAP EPS in the next four quarters of $3.95-$4.00, which yields a P/E ratio of 14X. Again, that’s an extraordinary ratio for a company with growth accelerating to double-digit levels, especially relative to other P/Es for IT vendors.

As mentioned, trying to develop a cash flow estimate for this or any other company involves making lots of assumptions. … I think a better way of looking at CFFO is to look at a non-GAAP earnings forecast and add depreciation and deferred revenue increases in order to arrive at a sustainable level - the CFFO metric. That suggests that CFFO could reach $1.6 billion over the next four quarters. With capex running at about $200 million, NetApp could achieve a free cash flow yield of $1.4 billion. That would be a free cash flow yield of around 12%, one of the highest free cash flow yields that I have ever seen.


The reaction to NTAP’s earnings were eerily similar to ANET, although invariably for different reasons. But both are now definitely on sale, using many different metrics.

NetApp is continuing to grow its own market share at the expense of other storage vendors (traditional and not), so if this is your kind of area to invest in, last week was a great entry point. Also have to
point out that NTAP pays a dividend, and with the kind of CFFO mentioned above, it would shock me if NetApp did NOT increase the dividend as part of their capital allocation plans going forward.

/long both NTAP and ANET, blah blah blah…


From Bert’s writeups and Tinker’s research, I am getting the impression that Pure and NetApp are primarily gaining market share at the expense of Dell/EMC and HPE.