Results from Crowdstrike (NASDAQ: CRWD) and NetApp (NASDAQ: NTAP) have brought dark clouds to the cloud-stock universe. While both companies had good CQ3 periods the outlook for the rest of the year is gloomy indeed. The news has both stocks down double digits but this may be an opportunity. Analysts in both names are defending their ratings and price targets citing secular demand and the ongoing shift to digitization, among other things. In the case of NetApp, it is also a blue chip-quality tech stock and a dividend-paying stock that should be of interest to income and dividend-growth investors.
The stock was yielding close to 2.8% before the post-earnings price implosion and it was a safe and growing distribution. The company has increased the payment for 9 consecutive years, has a low 37% payout ratio, and a 20% distribution CAGR which are metrics that should get any dividend investors' attention. Neither Crowdstrike nor Okta (NASDAQ: OKTA), which also reports this week, even pay a dividend so the choice of which cloud stock to buy and hold for 2023 may be very easy to make.
NetApp Falls On Shaky Guidance
NetApp had a decent quarter but the guidance for Q3 and the rest of the year suggests that businesses are slowing their spending and this trend could accelerate in the early portion of 2023 if the FOMC has anything to do with it. As it is, the Q2 results have revenue at $1.66 billion and up 5.7% versus last year. This revenue missed the consensus but by a tepid $0.010 billion and is offset by margin strength. On a segment basis, Product revenue grew by 3% and is up for the 7th consecutive quarter. Billings are up 3%, and 9% on an FX-neutral basis, and are driven by growth in Public and Hybrid Cloud segments.
Moving down to the margin, the company reported significant improvement in both GAAP and adjusted margins that are driven in part by the leverage of scale. The GAAP margin more than tripled while adjusted earnings grew 15.6% versus last year. The important factor, and one that is aiding the post-release plunge in prices, is the company’s exposure to foreign markets. The strong dollar shaved about $0.21 off the GAAP and adjusted EPS which is a deep cut for investors to bear.
It is the guidance, however, that really got the market moving. The company is expecting revenue and earnings below the Marketbeat.com consensus estimates, as was Crowdstrike’s guidance, but it is the degree of uncertainty that is truly worrisome. The range for revenue is quite wide, about =/- 900 basis points, which leaves a lot of wiggle room in the outlook and no room for outperformance relative to expectations. Investors should expect the same from Okta and other cloud services when they report.
The Analysts Are Holding NetApp, Consensus Is Slipping
There are 18 analysts with current ratings on NetApp, 9 came out following the earnings release, and they are still holding the stock. The consensus is a strong Hold ut this is down from Moderate Buy and the price target is slipping as well. The price target is still about 23% above the price action, however, and the 9 new price targets, which were all lowered, are bracketing the consensus nicely. The takeaway is that NetApp may be at a bottom, sentiment-wise, and Citigroup at least is calling this a buying opportunity.
NetApp is down hard in the wake of the report but still above support levels and showing signs of support in early trading. The support level is near $62 and could produce a solid bounce if reached. In that scenario, this stock may be range bound for the foreseeable future but that is better than the alternative. The alternative is that support fails to hold the stock above $62 and it moves down to new lows. 
