The cloud refers to a network of remote servers that are hosted on the Internet and used to store, manage, and process data. These servers are typically owned and maintained by a cloud service provider, such as Amazon Web Services (AWS), Microsoft Azure, or Google Cloud. These prospects are among the brightest on the market, with demand growth estimates for public cloud services of 15% a year, and 25% a year for private cloud services.

So, there are three types of cloud: public, private, and hybrid.

  • Hybrid: This type of cloud computing combines on-premises infrastructure—or a private cloud—with a public cloud. Hybrid clouds allow data and apps to move between the two environments. It provides greater flexibility, more deployment options, security, compliance, and getting more value from their existing infrastructure.
  • Public: The most common type of cloud computing deployment. The cloud resources (like servers and storage) are owned and operated by a third-party cloud service provider and delivered over the Internet. All hardware, software, and other supporting infrastructure are owned and managed by the cloud provider (Amazon, Microsoft, Google…). There is no maintenance, near-unlimited scalability, and high reliability.
  • Private: Cloud computing resources used exclusively by one business or organization and can be physically located at your organization’s on-site data center, or it can be hosted by a third-party service provider. The services and infrastructure are always maintained on a private network and the hardware and software are dedicated solely to your organization. It provides more flexibility, more control, and more scalability.
Segment revenue and gross margin

NetApp is a leading provider of hybrid cloud solutions, known for its flexible and cost-effective offerings. The company has successfully established itself in various industries, partnering with key players (more than 319 hybrid cloud partners). While NetApp originally operated as a hardware vendor, it strategically transitioned into a software solutions provider and strategy consultant. This shift has allowed the company to maintain its revenues and cash flows, but its business growth has been somewhat limited.

From 2011 to 2023, NetApp's sales remained consistently around $6 billion. However, the company has experienced notable improvements in operating margins, which have risen from approximately 18% in 2014 to over 25% presently. This improvement can be attributed to the transition from hardware to software solutions, while effectively managing costs. Its EBITDA and EBIT also exhibited a similar trend of slight increases over the same period. They respectively rose to $1.7 billion, while EBIT reached $1.5 billion.

It is crucial to recognize that despite consistent sales, the impact of inflation has led to a decline in real terms. In this fiercely competitive industry, establishing a foothold becomes exceedingly challenging for the group. Moreover, the relentless price war has further compounded the issue, causing a steady erosion of net margins.


Over the past decade, the company has generated over $10 billion in aggregate cash profits, particularly through its strong free cash flows. In 2023, the company's free cash flow (FCF) is expected to reach around $900 million, with a projected increase to $1.3 billion by 2025. It is worth highlighting that cash management poses no significant challenges in this business, as it operates with low capital intensity, variable cost structures, and upfront customer payments. Consequently, external financing requirements are negligible.

Given the favorable financial position, in the second quarter of 2023, NetApp announced a share buyback plan exceeding $1 billion, reflecting a total of over $13.9 billion in share repurchases over the past decade.

Income Statement

Notably, this financial engineering has significantly bolstered earnings per share. While free cash flow has remained relatively stable over the years, the number of shares in circulation has decreased by one-third during the period. Consequently, the average free cash flow per share increased from $2.3 between 2013 and 2017 to $4.4 from 2018 to 2022. This demonstrates effective management in creating value for shareholders.

Currently, NetApp's stock is trading at a price-to-earnings (P/E) ratio of 10.9, well below its 10-year average of 41.5. This valuation multiple aligns with that of a profitable and well-managed mature business, particularly in the current economic climate.

Overall, NetApp is a profitable company with a sound financial standing and capable management team. Capitalizing on the renewed investor interest in "risky" stocks, the company presents a compelling opportunity for those looking to leverage the hybrid cloud sector. It has successfully reinvented itself to sustain its business volume and profitability. However, it should be noted that it does not possess strong growth potential, despite the allure of the cloud industry.