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NetApp (NTAP) is one of the leading providers of storage and management data solutions. The company is ranked #51 out of the 100 "World's Most Innovative Companies" according to Forbes Magazine. The firm's inclusion in the 2012 list revealed how the innovation entrenched in the culture of NetApp has been part of its employees' commitment to deliver nothing less than the best services to its customers. The innovation of the company has been the foremost driver of its growth in the information technology industry, with over two decades of delivering top of the line technology and products to businesses around the globe. Several Wall Street analysts believe that NTAP is one of the most attractive acquisition targets in the technology space and top investors such as George Soros (Soros Fund Management), Lee Ainslie (Maverick Capital) or David Tepper (Appaloosa Management) added or initiated a position in the stock last quarter. In the blog Warren Trades, I detail why it is important to track hedge fund portfolio holdings.

It is always important to differentiate between structural or fundamental problems or just short term seasonal or macro headwinds that create earnings results that miss expectations. In the case of NetApp, the business is strong and fundamentally solid. NetApp is the only vendor that can unify structured and unstructured data at scale, which not only makes customers' information accessible, available, safe and cost-effective, but also empowers customers to use data to operate and transform their businesses. The stock has been under pressure from earnings results that did not match analyst expectations. The company's overall first quarter financial performance was in line with the company's internal expectations but were influenced by seasonality factors and a weak macro environment plus FX headwinds. The decline in product revenue drove the overall reduction in NTAP net revenue from Q4 as well as from Q1 last year. Recognizing the uncertain environment, the company demonstrated strong execution discipline in managing expenses, as well as generating a sequential increase in gross margin to produce better-than-expected operating margin and earnings per share.

The company is constantly innovating. With around 125 customers over 10 petabytes, 4 over 100 petabytes and the largest approaching 1 exabyte, nobody has demonstrated the ability to manage data at scale like NetApp. Along with the rapid customer adoption and innovation in the 8.1 product family, NTAP is also seeing solid momentum with Cluster-Mode adoption. Cluster-Modes sales are up 40% from Q4 '12. Clustering is not just another feature. It is a new approach to storage infrastructure. Other clustering approaches have existed for a while, and are targeted at standalone niche workloads. NetApp's unique strategy is to mainstream clustering by combining it with superior data management functionality, enabling a single architecture to serve the demands of many workloads.

One of the most important growth segments in NTAP is the flash storage. The company continues to aggressively pursue strategic innovation in its flash storage segment. In fact, NTAP introduced Flash Pools in Q1, which gives customers the opportunity to optimize the use of solid state and hard disks to achieve the optimal performance for business-critical workloads. In addition, the recent partnership with Cisco (CSCO) is strengthening the FlexPod business. That business grew almost 90% year-over-year. To date, NTAP has almost 1,300 FlexPod customers. The company is seeing strong traction across the board in all verticals. The greatest demand for FlexPod comes from customers wanting to run mixed workloads.

In terms of valuation, shares are cheap considering that NetApp currently sits on the largest pile of cash in its corporate history, $5.4 billion. Factor in debt of $1.5 billion (includes debt and non-cancellable operating leases) and a buyer would be getting the company with net cash equal to 31% of its market value.

I think that the company is an acquisition target. NetApp is one of the most attractive storage companies with a growing market share and product innovations. NTAP could be acquired by companies that manages both hardware and software businesses. NetApp's business mix may attract interest from International Business Machines (IBM), EMC Corp (EMC), Oracle Corp (ORCL), Microsoft (MSFT), Hewlett-Packard (HPQ) or Cisco. Several technological companies are holding large amounts of cash/investments and are interested in the data storage segment. I think that NetApp is a strong acquisition candidate for any of these companies considering that the core business is solid, earnings results come below expectations due to external and not fundamental factors and the company keeps innovating and growing.

Source: Top Investors Buy Into NetApp For These Reasons