NetApp Q2 2026 Analysis: Steady Growth & Rising Cloud Profitability

NetApp, a key player in the enterprise data storage and cloud management space, just released its latest quarterly report, giving us a fresh look at its financial health. In this post, we'll dive into the numbers from their second-quarter fiscal 2026 10-Q filing to understand the company's performance and what it signals about its strategic direction.

A Profitable Quarter with Steady Growth

For the quarter ending October 24, 2025, NetApp reported net revenues of $1.71 billion, a 3% increase from the same period last year. More impressively, the company's profitability saw a healthy boost. Gross profit climbed to $1.23 billion, lifting the gross margin to 72% from 71% a year ago. This efficiency carried through to the bottom line, with net income rising to $305 million, or $1.51 per diluted share, up from $299 million last year.

The following flow diagram visualizes NetApp's income statement for the quarter, illustrating how revenue from its business segments is converted into profit after accounting for various costs and expenses.

In the diagram, you'll notice a small slice for "Unallocated" costs. These are corporate-level expenses not assigned to a specific business segment. For this quarter, NetApp's unallocated cost of revenue primarily consisted of $7 million in stock-based compensation and $3 million related to the amortization of intangible assets.

A Tale of Two Segments

NetApp's business is split into two primary segments: Hybrid Cloud and Public Cloud. Understanding their individual performance is key to seeing the company's strategy in action.

• Hybrid Cloud: This is NetApp's traditional powerhouse, providing storage infrastructure solutions for customers managing data both on-premises and in the cloud. It remains the core of the business, generating $1.53 billion in revenue this quarter. While its gross margin saw a slight dip due to higher component costs, it continues to be the primary revenue driver.

• Public Cloud: This segment offers a portfolio of cloud-native storage and data services. While smaller, with $171 million in revenue, its profitability is the standout story. The Public Cloud segment's gross margin soared to an impressive 83%, up from 74% a year ago. The company attributes this significant improvement to cost optimization efforts and the sale of its "Spot by NetApp" business late last fiscal year. This strategic move, while muting the segment's top-line revenue growth, has clearly sharpened its profitability.

Strong Cash Flow and Shareholder Returns

Beyond the income statement, NetApp demonstrated robust financial strength. Cash flow from operations for the first six months of the fiscal year was a solid $800 million, a substantial increase from $446 million in the prior year. This strong cash generation allows NetApp to execute a balanced capital allocation strategy.

During the first half of the year, the company:

• Repaid $750 million in senior notes, reducing its debt load.
• Repurchased $550 million of its own stock.
• Paid out $207 million in dividends to shareholders.

This combination of deleveraging and returning capital to shareholders signals management's confidence in the company's long-term financial stability and cash-generating power.

Final Thoughts

NetApp's latest quarter paints a picture of a mature tech company navigating a market in transition. It's delivering steady, profitable growth from its core Hybrid Cloud business while strategically refining its Public Cloud offerings for higher profitability. The company's impressive cash flow underpins a shareholder-friendly approach of paying down debt and returning capital. As NetApp continues to compete in the dynamic cloud landscape, its ability to maintain this balance between core business stability and high-margin cloud growth will be crucial to its continued success.