Stocks started out Thursday by dipping in the morning, but rose steadily through the afternoon. The Dow Jones Industrial Average (^DJI -0.84%) closed up over 25,000, and the S&P 500 (^GSPC -0.78%) had a significant gain as well.
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As for individual stocks, NetApp (NTAP -0.26%) fell after the company reported strong earnings growth, and TripAdvisor (TRIP -2.53%) gained despite weak earnings. The reasons behind the stock moves were a bit subtle.
NetApp reports strong growth
Shares of NetApp, a provider of software and services for data storage, fell 4.9% despite the company reporting fiscal third-quarter results that were above expectations. Revenue grew 8.5% to $1.52 billion and non-GAAP earnings per share increased 20.7% to $0.99. Analysts were expecting the company to earn $0.91 on $1.50 billion in sales. GAAP EPS was a loss of $1.89 due to a one-time charge due to the new tax law.
Product revenue grew 17.4% while services revenue fell 2.7%. The company highlighted a nearly 50% increase in sales of NetApp's all-flash storage arrays and progress it is making selling tools for cloud-based storage. Free cash flow as a percentage of revenue increased to 25.5%, up from 20% last quarter and 13.5% in the quarter a year ago. Guidance for next quarter was roughly in line with expectations.
So what was not to like about the report? Analysts were concerned about discounts and questioned why gross margin fell from 64.3% last quarter to 62.6% in Q3, but management pointed out that there were some one-time benefits in Q2 and that some seasonality came into play. Actually, the Q3 gross margin exceeded the 61.5% number a year ago, but the guidance for gross margin of around 62% next quarter may have stoked concern.
The results were good, but it might be that investors were just hoping for more, having driven up the stock price in anticipation of the report, and shares retreated to prices seen just last week.
TripAdvisor beats low expectations
TripAdvisor reported fourth-quarter results that beat expectations for revenue but missed on profit, and shares rose 4.1%. Revenue grew 1.6% to $321 million while analysts were expecting $312 million. Non-GAAP EPS declined to $0.06 compared with $0.16 last year and Wall Street expectations of $0.14. Including a one-time charge due to the new tax law, GAAP EPS was a loss of $0.60.
Revenue from TripAdvisor's hotel segment, which accounts for 76% of the total, fell 3% while non-hotel revenue grew 20%. Average monthly unique visitors grew 17% year over year, even with the result last quarter, and user reviews and opinions grew 29%, down from last quarter's 32% growth. Average monthly unique hotel shoppers grew 3%, down from 7% last quarter, and average revenue per hotel shopper fell 14% from last year.
Looking forward, TripAdvisor expects hotel revenue in 2018 to decline from 2017, strong growth in the non-hotel segment, and adjusted EBITDA to be flat with 2017.
So what's to like about this report? Apparently investors were expecting further declines in profit, continuing a trend since 2015, so the guidance for flat EBITDA was therefore relatively good news. The company didn't supply revenue guidance, but emphasized it will be getting more efficient with its marketing spending. With user engagement still growing at a reasonable rate, if it can manage to grow revenue from its non-hotel business while cutting marketing expense, weak comparisons in the second half might just be enough to yield some profit surprises later -- or at least that's what investors seemed to be hoping today.